Reddit stock tumbled on Wednesday even though the social media company reported second-quarter sales that exceeded expectations and a narrower-than-expected loss. Revenue grew 54% year over year.
Reddit reported Tuesday that it lost 6 cents per share on sales of $281.2 million for the June-ending quarter. On average, analysts projected that the San Francisco-based company would lose 32 cents per share on sales of $254 million, according to FactSet.
This is Reddit's second time reporting earnings results since its initial public offering in March. Reddit lost $10.1 million for the second quarter, compared with a $41 million loss for the same period a year earlier.
For the current quarter, Reddit guided for sales of $300 million. Prior to Reddit posting its results, analysts were projecting the social media firm would tally $282 million in sales for the September-ending quarter, according to FactSet.
On the stock market today, Reddit stock shed more than 6% to 50.64.
Reddit Users Grow 51%
Reddit's base of daily active unique users increased 51% to 91.2 million. Weekly active unique users increased 57% to 342.3 million.
"We had a strong quarter across the board and more people are visiting Reddit than ever before," Chief Executive Steve Huffman said in a news release.
The majority of Reddit's revenue comes through ad sales. Advertising revenue increased 41% year over year to $253.1 million.
Reddit also logged $28.1 million in "other" revenue. The company has reached licensing deals with firms such as OpenAI and Google parent company Alphabet that allow the companies to train large language models using Reddit user content.
Reddit's strong forecast comes after social media firms Snap and Pinterest both gave lower-than-expected sales outlooks for the current quarter.
New Street Research analyst Dan Salmon said Reddit's results and guidance were solid. "But with no new large data licensing clients announced, and high buyside expectations post IPO, the stock is understandably giving a little more back after its recent pullback," Salmon wrote.
Reddit Stock: Strong Relative Strength Score
Reddit stock has traded with volatility in its time on the market. The stock reached a record high near 78 in mid-July. But with Wednesday's action adding to a recent slide, shares are up just 2% from Reddit's first-day closing price in late March.
Coming into the report, Reddit stock had an IBD Composite Rating of 62 out of a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
Further, Reddit's IBD Relative Strength Rating was 86 out of 99, which means that Reddit has outperformed 86% of all stocks in IBD's database over the past year.
