Reddit has made a remarkable turnaround, reporting its first-ever profit in its nearly 20-year history, a significant milestone for the social media giant that went public earlier this year. Reddit's shares surged by 24% in premarket trading on Wednesday after the company announced its third-quarter earnings, which far exceeded Wall Street's expectations. The platform posted a net profit of $29.9 million, or 16 cents per share, well above the predicted net loss of $17.7 million, or 10 cents per share. Additionally, Reddit's revenue hit $348.4 million, a 68% increase from the same period last year, surpassing the $312.2 million estimated by analysts.

Reddit's resurgence is not just limited to its earnings. The company has also seen significant user growth, with its daily active users (DAUs) reaching 97.2 million, marking a 47% increase year-over-year. On some days, the platform surpassed 100 million DAUs, showcasing its growing influence. "Reddit's influence continues to grow across the broader internet," said Steve Huffman, Reddit's CEO, in a letter to shareholders. He attributed the platform's success to several new initiatives, including its AI-powered translation feature, which has helped expand Reddit's reach in non-English speaking countries.

This third-quarter profit marks a major shift for Reddit, which struggled financially in its early quarters as a public company. The social media platform lost $575 million in its first quarter after going public and narrowed that loss to $10 million in the second quarter. Now, with Reddit turning a profit, the outlook is even more promising for the fourth quarter. The company projects revenue in the range of $385 million to $400 million and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $110 million to $125 million.

Advertising revenue has been a key driver of Reddit's financial success. Citigroup analysts, who rate Reddit stock as a "buy," noted that the company's advertising revenue surged by 56% in the third quarter, fueled by growth in impressions, more efficient ad placements, and new advertising formats. Reddit's total ad revenue reached $315.1 million, while another $33.2 million came from data licensing agreements with companies like Google and OpenAI. These companies have used Reddit's vast trove of user-generated content to train their artificial intelligence models.

As Reddit's financial health improves, its stock performance has been equally impressive. Shares are now trading at over $101, nearly three times higher than the $34 price at which Reddit's initial public offering (IPO) was priced in March. JPMorgan analysts raised their price target on Reddit's stock to $110 from $77, though they maintained a "neutral" rating, citing the stock's rapid ascent.

Steve Huffman emphasized the importance of user engagement in driving Reddit's growth. The platform, which was the sixth most Googled term in the U.S. in 2024, has become a go-to source for advice, answers, and community discussions. As part of its expansion efforts, Reddit plans to continue rolling out its AI-powered translation feature, which began with French and has since been expanded to include Spanish, Portuguese, Italian, and German. Huffman said Reddit plans to bring the translation tool to over 30 countries by 2025, further solidifying its global presence.

In addition to growing its user base, Reddit has focused on diversifying its revenue streams. Over the past year, Reddit has signed advertising deals with professional sports leagues, upgraded its popular "ask me anything" (AMA) posts, and implemented measures to prevent unauthorized web scraping of its content. Huffman has even floated the idea of allowing users to create paid subreddits as part of the company's broader monetization strategy.

The platform's profitability also reflects broader shifts in the social media landscape. Reddit's valuation now exceeds that of Elon Musk's X (formerly Twitter), which is valued at $9.4 billion. Reddit is now valued at over $10 billion, despite the fact that it is smaller in scale than X. While X has a much larger user base-receiving more than 700 million visits last month compared to Reddit's 13.5 million-Reddit's ability to generate revenue through advertising and data licensing has helped it outpace X in market value.