Reddit posts $575 million loss tied to IPO but also strong growth

Reddit on Tuesday reported a quarterly loss of more than $500 million in its first earnings report as a public company, largely due to stock-based compensation expenses it incurred during its initial public offering in March.

But the social media company has also seen strong revenue and user growth, underscoring the potential of its digital advertising business as people flock to the site. Last month, Google, Meta and pop It also reported higher ad sales and double-digit revenue growth.

Reddit’s revenue was $243 million in the first quarter, up 48 percent from $163.7 million a year earlier and above Wall Street estimates of $214 million, according to data compiled by FactSet. The net loss was $575.1 million, compared to a loss of $60.9 million in the previous year. Total stock-based compensation expense was $595.5 million, compared to $13.2 million in the previous year. The number of daily active users jumped to 82.7 million, an increase of 37 percent over the previous year.

The result sent Reddit shares up 17 percent to $58 in after-hours trading.

Steve Huffman, co-founder and CEO of Reddit, attributed this growth to the company’s improvements in product updates and content recommendations to users.

“We’ve long said that everyone has a home on Reddit, but we’ve gotten much better at helping them find it,” he said in an interview. “We have reached an inflection point where our business is working.”

Reddit, which went public after more than 18 years as a private company, has turned into a kind of testbed for tech initial public offerings. The company successfully debuted in a tepid IPO market, with its shares rising 48 percent on the first day of trading, giving investors reason for optimism. Reddit shares continue to trade above the company’s IPO price of $34.

Essentially a message board where users gather in forums to search and discuss common interests, Reddit has spent years trying to diversify its core business of digital advertising. It has struck deals with Google and Cision, a public relations services company, and is in talks with other companies that want to license vast amounts of conversational data, such as building artificial intelligence technology. It also tried to stimulate e-commerce businesses.

In a letter to shareholders on Tuesday, Mr. Huffman said he expects to continue investing in artificial intelligence technology to improve Reddit’s content recommendations so people spend more time on the site. He also plans to invest in search technology, which can help people find information from conversations across the site.

Reddit expected revenue of between $240 million to $255 million in the current quarter, exceeding Wall Street expectations.

Users, known as Redditors, were concerned about the company going public, worried that executives would prioritize profits, and vented their frustration on message boards and across social media. But some of that anxiety appears to have subsided in recent weeks, said Mr. Hoffman, who described the past month as “relatively quiet.”

“We are in a good place and have a good foundation to build on,” he said.