Reddit's strong revenue forecast signals advertising strength

Reddit forecast second-quarter revenue above Wall Street estimates on Thursday.

Reddit forecast second-quarter revenue above Wall Street estimates on Thursday, betting on growing digital advertising spend on the social media platform despite uncertainty over marketing budgets.

The company's shares, which rose as much as 20% in extended trading, pared gains to trade up 7%, after CEO Steve Huffman said on a post-earning call that the company expects some disruption for daily active users from Google search.

"We do expect some bumps along the way from Google, because we've already seen a few this year," Huffman said, adding that the search ecosystem was undergoing significant changes, which could prompt frequent near-term disruptions.

Reddit had experienced volatility in traffic from Google's search algorithm change in the fourth quarter due to the search giant's focus on AI-generated summaries on its results page.

But, results suggest that Reddit's ad tech investments are paying off and the company is attracting advertisers at a time when the ending of a duty-free import loophole, combined with deepening trade tensions, has constrained ad budgets for some social media platforms.

Facebook-parent Meta topped revenue expectations on strong ad sales. In contrast, smaller rival Snap said that it would not issue a quarterly forecast due to economic uncertainty, as advertisers favor bigger platforms in tough times.

Reddit is benefiting from its conversation placement ads format, where brands can advertise directly within discussion threads taking place in its interest-based communities known as subreddits.