(Reuters) -Reddit forecast fourth-quarter revenue above Wall Street estimates on Thursday as its artificial intelligence-powered advertising tools help draw more marketing spending, sending shares of the social media platform up 9% after hours.
The company's AI-optimized ad platform helps advertisers to place targeted ads directly within relevant discussion threads across its interest-based communities, known as subreddits.
Chief Operating Officer Jen Wong said Reddit's ad business was pulling in a broader range of clients, which lifted its active advertiser base by more than 75% in the third quarter.
"We're also in early testing of our end-to-end automated campaign platform that uses AI to streamline campaign setup." Wong said.
Its vast content library has also became a prized asset as AI companies hunt for data to train their large language modes, the technology behind chatbots such as ChatGPT.
Reddit has licensing deals with Alphabet's Google and Microsoft-backed OpenAI. It also cracked down on allegedly illegal data scraping by Perplexity AI and other three companies with lawsuits last week.
"To continue its upward trajectory, the company must continue to protect its intellectual property," said Jeremy Goldman, senior director of briefings at Emarketer.
The results are a positive sign for a company competing with dominant platforms TikTok and Meta in a crowded social media market. Meta reported upbeat third-quarter revenue as its own AI ad efforts paid off.
But growth in Reddit's U.S. daily active unique visitors' (DAUq) slowed sharply in the third quarter, even as global DAUq rose 19% to 116 million. Its average revenue per user increased by 41%.
Reddit's U.S. logged-in DAUq, who have created an account on the platform, grew by 7% in the third quarter. But it slowed from the 11% growth seen in the prior quarter.
The company expects fourth-quarter revenue to be between $655 million and $665 million, above analysts' average estimate of $637.9 million, according to data compiled by LSEG.
It forecast fourth-quarter adjusted earnings before interest, taxes, depreciation, and amortization to be between $275 million and $285 million, exceeding estimates of $258.8 million.
Third-quarter revenue rose 68% to $585 million, beating estimates of $545.7 million.
(Reporting by Jaspreet Singh in Bengaluru; Editing by Maju Samuel)
