Reddit's holiday-quarter forecast shows AI ad strategy paying off

(Reuters) -Reddit forecast fourth-quarter revenue above Wall Street estimates on Thursday, thanks to its artificial intelligence-powered advertising tools that are boosting marketing spending on the social media platform.

Shares of the company rose about 8% in extended trading.

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.

The approach allows marketers to harness user-driven conversations for better targeting.

Reddit's vast content library is one of its valuable assets at a time when AI companies are looking for data to train their large language modes, a technology behind chatbots such as ChatGPT, Gemini and Grok.

The company already licenses its data to Alphabet's Google and Microsoft-backed OpenAI. It sued Perplexity AI and other three data scraping companies last week, alleging them of illegally collecting Reddit's data.

Reddit operates in a crowded social media market, where dominant platforms such as TikTok and Meta are aggressively vying for new advertisers with their massive user-bases and AI-powered ad tools. Facebook-parent Meta reported upbeat third-quarter revenue on Wednesday.

Reddit expects fourth-quarter revenue to be between $655 million and $665 million, compared with analysts' average estimate of $637.9 million, according to data compiled by LSEG.

The company forecast fourth-quarter adjusted earnings before interest, taxes, depreciation, and amortization to be between $275 million and $285 million, compared with estimates of $258.8 million.

Daily active unique visitors rose 19% to 116 million in the third quarter ended September 30, while its average revenue per user increased by 41%. The company said its machine translation feature now supported 30 languages, helping fuel user growth across markets outside the United States.

Third-quarter revenue rose 68% to $585 million, beating estimates of $545.7 million.

(Reporting by Jaspreet Singh in Bengaluru; Editing by Maju Samuel)

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