Reddit stock (RDDT) popped as much as 5% Wednesday after the company said in its first-ever quarterly earnings report that it expects better-than-expected sales growth in the current quarter and further progress on profitability.

Reddit said in its release on Tuesday that it expects second quarter revenue in the range of $240 million to $255 million, above Wall Street's estimates for $228 million. The social media company also said it sees adjusted EBITDA in the current quarter in a range of $0 to $15 million. The Street had been expecting a loss of $13 million.

Reddit's daily active users hit 82.7 million, up 9% from the prior quarter and rising faster than analysts had projected.

"Reddit delivered a strong first quarter post its IPO, in our view," Citi analyst Ronald Josey wrote in a note to clients on Wednesday. "Importantly, we believe improving engagement trends are lasting."

After initially soaring following its public offering in late March, Reddit shares tanked in the following weeks, falling from a peak of about $74 per share to just below $40 as concerns over the company's lofty valuation and future potential revenue streams mounted.

But the report from the company that once hosted fodder for meme stock targets highlighted a trend recently seen in other names favored by retail traders: After a quarter JPMorgan analyst Doug Anmuth described as "strong," Reddit stock is moving higher but not surging to a point that's hard for analysts to reason with.

"We expect trends to remain strong through the year given recent tailwinds, and we raise our 2024 & 2025 revenue estimates by 11% & 12%, respectively," Anmuth wrote.

Anmuth maintained a Neural rating on the stock while raising his price target to $57 from $47, noting that shares appear "fairly valued" right now.

Bullish strategists on Wall Street highlight that Reddit's future prospects in artificial intelligence, through use cases like selling its data to large language model providers, will drive more growth than is currently priced in.

Reddit CEO and co-founder Steve Huffman flexed the social media platform's large database, which Alphabet (GOOG, GOOGL) is already paying to have access to, during his opening remarks on Tuesday night's earnings call.

"We have nearly two decades of authentic conversation, unique perspectives, earnest advice, honest reviews, and answers the questions about every topic imaginable," Huffman said.

Needham analyst Laura Martin argued in a research note that this could be crucial to Reddit's future growth. Martin added Reddit to Needham's "conviction list" with a Buy rating and $63 price target, noting optimism about Reddit's upside from licensing its data to train generative AI large language models.

"We also believe that there are no high-quality substitutes at similar scale, which should give RDDT pricing power," Martin wrote. "We believe RDDT's data will become table stakes for all GenAI [large language models] over time."

For now, though, that eventual path to AI data licensing deals remains unclear. Huffman said on the earnings call that there are a "handful of large players and many more smaller opportunities" and that the company is looking into both. Huffman declined to comment on any active negations.

"We're in early days here," Huffman said. "I'd say, big picture, we have seen an increase in interest in Reddit's data for various uses. And so, look forward to how this grows looking forward."

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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