Reddit Becoming an AI Story: Reddit’s stock is surging, up nearly 40% after an impressive third-quarter earnings report. Revenue soared over 60%, with a swing to profitability from an expected loss and guidance well above projections. The standout, though, was user growth, as daily active users jumped almost 50% from a year ago, nearing 100 million—a highly appealing number for advertisers and for Reddit's emerging presence in the AI arena. As a user-driven platform (news and forums), Reddit’s vast array of diverse, rich content is prime material for training large language models. This potential is already yielding results, with “other revenue” from AI licensing deals spiking 550% from a year ago to $33 million—a key driver behind the quarter's profit beat. With advertisers showing renewed interest and Reddit’s role in AI advancing, it’s clear why the stock reacted so strongly. It will be intriguing to watch how the market values the company in the coming months.
A Couple Earnings Shortfalls/Opportunities: We're into the heart of Q3 earnings season, and two stories from this week are worth a look: Chipotle and PayPal. Both saw share declines following their results, but this was more a reflection of sky-high expectations rather than any real issues with the businesses. Chipotle, which we've discussed often, continues to perform exceptionally well, posting another quarter of increased customer traffic even as the broader industry sees declines. This report was also its first without former CEO Brian Niccol, who moved to Starbucks. Despite concerns about potential operational impact, Chipotle seems to be executing smoothly. The stock's dip likely reflects some profit-taking by shorter-term investors rather than a sign of trouble.
PayPal, on the other hand, is a newer name we’ve been watching. After a dramatic fall from grace post-pandemic due to both product and management missteps, the company recently brought on a new CEO focused on revitalizing growth and fully leveraging the PayPal and Venmo brands. The stock has rebounded nicely under his leadership, though it’s still far below its previous highs. Following a period of optimism around the new CEO, this earnings miss seemed to prompt a similar bout of profit-taking. While the results still need to align with expectations, both Chipotle and PayPal may be prime examples of situations where short-term volatility offers an entry point without materially changing the businesses' long-term outlook.
Ford’s Struggles Continue: Ford has missed the mark again, reporting weaker-than-expected results and guiding toward the low end of its full-year forecast. Once more, profits and cash flow were weighed down by persistent warranty issues and rising costs. While there was some improvement from the previous quarter, it wasn’t enough and isn’t where the company should be at this stage. Inventory levels are also running high, likely setting up for steeper discounts as the year wraps up.
This is undoubtedly frustrating for Ford investors, given strong consumer demand and a lineup of well-loved models like the F-150, Bronco, Mustang, and Navigator. The real kicker? Ford’s direct competitor, GM, has managed to execute exceptionally well, combining demand with disciplined product quality, inventory management, and cost control, leading to stronger earnings and cash flow. GM is also leveraging its strong cash reserves for buybacks, a move Ford has yet to make. Overall, it’s hard to find compelling reasons to hold Ford stock with its track record of operational misses and underperformance.
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