Reddit shares surge on strong AI ad growth and revenue forecast

Reddit's latest numbers forced a sharper business question onto Wall Street: is artificial intelligence really lifting ad revenue, or simply inflating the story around it? The company said first-quarter revenue rose 69% to $663 million, ad revenue jumped 74% to $625 million, and net income reached $204 million, while daily active uniques climbed 17% to 126.8 million and global average revenue per user increased 44%.

The market's reaction centered on the next quarter. Reddit forecast revenue of $715 million to $725 million for the second quarter and adjusted EBITDA of $285 million to $295 million, both above analyst expectations. Shares surged more than 12% after the update, and if those gains held, Reddit was on track to add about $3.4 billion in market value. Before the report, the stock had fallen roughly 36% year to date, making the rebound especially forceful.

What investors are buying is Reddit's claim that its interest-based communities, or subreddits, let advertisers reach users with more precision than broad social feeds. That pitch is now tied to a growing set of AI tools that help create and manage campaigns, including an AI copywriter for Reddit-specific ads and an automatic creative asset cropper for different placements. Active advertisers rose more than 75%, a sign that the revenue gain was not driven by a single large customer.

The financial profile strengthened the case further. Reddit reported gross margin of 91.5%, operating cash flow of $312 million and free cash flow of $311 million in the quarter. Those figures suggest the company is monetizing traffic efficiently, not just buying growth. Even so, the durability question remains central because Reddit's valuation now depends on continued user expansion, stronger engagement and ongoing improvement in ad conversion.

Analysts at B. Riley Securities pointed to product changes such as feed personalization, a narrower gap between the iOS and Android apps, simpler onboarding and better marketing as drivers of engagement. Morgan Stanley said execution on U.S. user growth remains key to multiple expansion in a GenAI-enabled market. At least seven brokerages raised price targets after the results, underscoring how quickly sentiment shifted.

Reddit said it had 206.4 million fully diluted shares outstanding as of March 31. With Meta, Snap and Pinterest still working through slower ad markets and restructuring of their own, Reddit is trying to prove that AI can do more than sharpen messaging. It can help build a profitable ad business that lasts.