By Jaspreet Singh

(Reuters) – Reddit reported its first quarterly profit on Tuesday and forecasts fourth-quarter revenue exceeding estimates. This surge is attributed to AI content licensing deals and strong digital advertising spending, resulting in a 22% rise in shares during extended trading.

Reddit's latest results affirm increasing advertiser interest in the platform. This engagement has been bolstered by initiatives utilizing machine learning for translations, aimed at attracting new users.

In 2025, the company plans to modernize its search products, enhancing the results page, autocomplete features, and incorporating large language models to improve search outcomes, as stated by CEO Steve Huffman during a post-earnings call.

Revenue has also benefited from Reddit's content licensing agreements with Alphabet’s Google and Microsoft-backed OpenAI, which are crucial for training their AI models, according to analysts.

“Reddit's AI partnerships with Google and OpenAI are significant for stability, yet they’re viewed as initial support rather than a long-term growth strategy,” remarked Jeremy Goldman, senior director at Emarketer.

Reddit anticipates fourth-quarter revenue between $385 million and $400 million, exceeding analysts' average expectation of $357.9 million, according to LSEG data.

The company reported a profit per share of 16 cents for Q3, in contrast to a loss of 13 cents a year earlier. Analysts had predicted a loss of 7 cents per share.

Revenue climbed 68% to $348.4 million in the quarter, surpassing the analysts’ forecast of $312.8 million.

Daily active unique visitors rose by 47% to 97.2 million for the third quarter ending September 30. Additionally, global average revenue per user (ARPU) increased 14% to $3.58.

“The disparity in revenue generated per user between Reddit and platforms like Pinterest and Meta indicates potential for improved advertising returns through better audience targeting and performance tracking,” noted Michael Ashley Schulman, chief investment officer at Running Point Capital.