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Reddit said Tuesday evening that it’s more than doubled revenue from last year, and users are flocking to the site. But its stock is dropping anyway.
Reddit’s revenue rose 54% to $281 million in the second quarter. The social media site said its daily active users in the U.S. increased nearly 60% from last year, and global daily users grew 51%. Deutsche Bank analysts sent a note to investors Wednesday morning about Reddit’s earnings with the subject line “Funneling In Users Like A Firehose.”
Reddit had one of the hottest IPOs of the year in an otherwise cool market, and its share price soared as much as 70% upon its stock market debut. Its first earnings report since going public (for the three months ended March 31) beat Wall Street’s expectations, as did its second.
“Reddit continues to outpace expectations,” they remarked, adding that the company “is displaying the key ingredients for durable revenue growth.”
But Reddit shares fell as much as about 9% Wednesday afternoon. The drop could be due to a couple of factors. One: Reddit gave mixed signals about its views of the advertising market. Advertising makes up the bulk of Reddit’s income, accounting for $253 million of its second-quarter revenue. Reddit’s third-quarter sales forecast was cautious, according to J.P.Morgan’s Doug Anmuth. Anmuth said the outlook “appears conservative, unless [management] is more worried about health of the ad market than they suggest.” Reddit’s cautiousness going into the third quarter could be spooking investors.
A second potential cause for the stock-price sink is that Reddit’s post-IPO lockup period ends Friday. That means Reddit insiders will be able to cash out their Reddit stock. Wall Street might be worried about a selloff. Anmuth said the lock-up expiration “could create increased volatility” and “pressure shares.”
Reddit, by the numbers
$281.2 million: Reddit’s second-quarter revenue, up 54% from last year
41%: How much ad revenue increased from last year
59%: Increase in Reddit’s U.S. daily active users in the second quarter from the same period last year
9%: How much shares sank, hitting a low of $49, in Wednesday trading
$78: Reddit’s 52-week share price high