Reddit's profitability surges 35%, with optimistic outlook

• Reddit's shares rose a day after the company announced third-quarter earnings that surpassed analyst predictions.
• The company's revenue increased by 68% to $348.4 million compared to the previous year.
• Reddit CEO Steve Huffman stated that the company had another successful quarter with significant achievements in its communities.

On Wednesday, the social media company's shares rose 35% after posting a surprise profit in its third-quarter results and providing optimistic guidance for the future.

During the third quarter, Reddit's revenue increased by 68% compared to the previous year, reaching $348.4 million, which exceeded the analysts' expectations of $312.8 million, as polled by LSEG.

Reddit's third quarter earnings exceeded analyst expectations, with a net income of $29.9 million, or 16 cents per share, compared to a net loss of $7.4 million, or 13 cents per share, in the same quarter a year ago.

Reddit expects to generate fourth-quarter revenue between $385 million and $400 million, exceeding the average analyst forecast of $357.9 million.

Reddit CEO Steve Huffman stated in a press release that the company had another successful quarter with significant milestones, including increased user traffic, revenue growth, and profitability.

During its third quarter, Reddit's daily active unique users increased by 47% year over year to 97.2 million. Analysts at Citi said this user growth underscored the company's "impressive" results. The analysts reiterated their buy rating and raised their target price on the stock to $120 from $70.

JP Morgan analysts believe that Reddit is benefiting from structural improvements in its execution across users, product, and monetization. They are encouraged by the company's strong revenue growth, improved profitability, and growing daily active unique users.

The analysts wrote in a Wednesday note that they are searching for continued execution across advertiser scale, new ad formats/technology (Search, Conversation Ads, Shopping Ads), and progress toward management's 40% L-T Adj. EBITDA margin target.

On Wednesday, Bernstein analysts compared Reddit's third-quarter performance to a "real Dr. Jekyll and Mr. Hyde story." Prior to its IPO, the company felt stuck and unable to grow, but post-IPO, it is exceeding expectations.

"Reddit has experienced rapid growth in ad revenues and user growth, thanks to its partnership with Google, and has achieved profitability targets in a short period of time, making it seem like a sudden AI winner. Currently, Dr. Jekyll, who is in charge, is responsible for this success."

— CNBC's Michael Bloom and Jonathan Vanian contributed to this report.