Reddit (RDDT) posted its first quarter results since its IPO, revealing a 39% surge year-over-year in advertising revenue. In addition, Reddit's second quarter revenue guidance surpassed analysts' estimates, signaling continued momentum for the company.

Bernstein Internet Equity Research Analyst Mark Shmulik joins The Morning Brief to discuss his wait-and-see approach to Reddit's value going forward.

Shmulik elaborates on Reddit's deals to license its data for generative AI platforms: "The biggest deal is obviously the Google (GOOG, GOOGL) one to kind of ingest that real human kind of data into some of those generative AI, the Gemini results, and I think we'll see if Google sees real value in it, that it helps kind of create more authenticity in the responses, not who can kind of scam the algorithm the best or flood the algorithm the best to kind of deliver whatever results they want we'll see if the others kind of come on board."

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This post was written by Nicholas Jacobino

Video Transcript

Let's get to Reddit because shares there are surging after reporting revenue surging at 48% from a year ago and its first earnings release as a public company ad revenue alone soared 39%.The social media platform also giving revenue projections here for the current quarter that are well above the street's expectations.You're looking at reddit now up just about 5% since the start though of trading.When you take a look at that max chart, you've got shares up just about 11%.Here we are today above 51 bucks a share for more on these results.We wanna bring in Mark Schue, he's Bernstein internet equity research analyst joining us now, Mark, it's good to see you.So talk to us just about this prim because it looks like at least at first glance, there is certainly a lot to like within this report.You though don't seem to be convinced why.Yeah, first uh thanks for having me and, and it was objectively a great first uh report uh or, or print out of the door uh for Reddit now is a public company.Uh and the top line numbers look great, you know, revenue growth uh growing well above expectations led by ad growth, which is what you want to see.Uh and engagement growth or, or user growth is also kind of very strong.Um And so near term, we really like it, it's kind of a tactical play.I I think they have some very easy compares.Um you know, what we're starting to see is that there's just a really robust digital ad market at the moment management on the call last night shared.You know, this is kind of one of the best brand markets for brand ad spent since 2022.Uh You've seen it reflected elsewhere.Pinch or Snapchat seen this massive acceleration uh in advertising growth uh and on the engagement front, um you know, a lot of that engagement has actually been driven by logged out users.Uh So, you know, anybody who's been on Google has probably seen reddit blue links show up more and more.Um you know, it's good to get those users.They're probably slightly lower calorie users.That's been the biggest bulk of of kind of their engagement growth.And you know, as we know that over the longer term, those are just tougher users to monetize.Yeah, you're probably talking about me, Mark, I, I mean, I, I sometimes forget my password to Reddit, but uh don't tell any of the scammers out there that anyway, all these things considered, where is the biggest growth opportunity for Reddit right now.I mean, reengaging with some of those users as you were just mentioning a minute, a moment ago, but also on the monetization, it's more than just a platform where they've gotta be able to have advertisers that are willing to run campaigns.There, there are other efforts that they need to put forward to monetize, right?Uh That's right.And you know, and so first is you wanna bring advertisers onto your platform, so you need to have something to sell.Uh So they've been building out kind of a suite of ad products, some of which look really similar to what we've seen else where uh we heard management last night talk about potentially getting into search ads.There's a lot of on platform search behavior video ads, which are certainly very popular right now across tiktok meta, you know, youtube, et cetera.So there's more products that they can bring to the table and then beyond advertising, you know, they do have the big A I data like fencing deal with Google.There's a few other smaller ones that they kind of mentioned.So there's, you know, kind of call it a uh a platter of monetization opportunities ahead of them here.What, what type of additive do you think the A I and because of user generated content and, and data that takes place on the platform as we were discussing earlier, really exhibiting that human realm of conversations, you know, what type of additive do you think that could be over time to the revenue to the bottom line for this company?Yeah, it's, it's, it's a good question and you know, and so far the biggest deal is obviously the, the Google one to kind of ingest that real human, uh you know, kind of data into some of those generative A I the Gemini results.Uh And I think we'll see, you know, if, if Google sees real value in it that it helps kind of create more authenticity in the responses, not who can kind of, you know, scam the algorithm, the best or flood the algorithm the best to kind of deliver whatever results they want.Um You know, we, we, we'll see if the others kind of come on board and I think that's one marker we're watching to see, you know, does open A I get involved and do a licensing deal, does, does meta with Lama do a deal, does anthropic.And so, you know, we'll see how valuable this data is if we see the other big foundational model builders follow suit.