(Reuters) -Reddit forecast third-quarter revenue above Wall Street estimates on Tuesday, a sign that a recovering digital ad market would draw new advertisers to the social media platform.
The results, the company's second after it went public in March, follow bigger rival Meta's upbeat second-quarter revenue and rosy sales forecast, driven by robust digital-ad spending.
The earnings also fan optimism that Reddit's content licensing deals with Alphabet's Google and Microsoft-backed OpenAI are paying off despite a fiercely competitive social media market, as it looks to diversify its revenue streams.
Reddit also signed deals with sports leagues, including the National Basketball Association and the National Football League in July, to attract a loyal sports audience and in turn create opportunities for advertisers.
The company said it expects third-quarter revenue to be between $290 million and $310 million, compared with analysts' average estimate of $278.7 million, according to LSEG data.
Its daily active unique visitors increased 51%, to 91.2 million in the second quarter ended June 30, while its average revenue per user increased about 2%, to $3.08.
Shares of the San Francisco-based social media platform were down 4.4% in extended trading.
"Low ARPU growth is likely a big culprit in the stock downswing, since it's a sign that the company is struggling to translate time spent on the platform into meaningful revenue increases," Emarketer analyst Daniel Konstantinovic said.
Revenue for the second quarter rose about 54%, to $281.2 million from a year earlier, compared with an average estimate of $253.6 million.
(Reporting by Jaspreet Singh in Bengaluru; Editing by Pooja Desai)
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