Reddit experienced its most tumultuous day since going public in 2024, as its stock (RDDT) plummeted a staggering 29.22% on Friday. This significant drop follows the social media giant's release of its latest earnings report, which included a weaker-than-anticipated fourth-quarter sales outlook.
The company projected Q4 sales to be between $1 billion and $1.03 billion, falling short of analysts' estimates of $1.05 billion. While Reddit's third-quarter sales grew 53% year-over-year and beat Wall Street expectations for both earnings and revenue, the forward-looking guidance sent shockwaves through the market.
Watch the related video: Reddit shares fall double digits on lighter-than-expected daily active users
A major contributing factor to the revised outlook is the evolving landscape of online search. Reddit CEO Steve Huffman noted in an interview with CNBC that search referral traffic from Google (GOOGL) had declined "meaningfully" during the quarter due to the rise of Google's AI Overview. This shift directly impacts Reddit, which has traditionally relied on its community-generated content being easily accessible via search.
In response to these challenges and to bolster its advertising business, Reddit announced a significant strategic pivot: it plans to test requiring users to log in to access content. This move represents a dramatic departure from Reddit's long-standing open access policy, which Huffman himself had championed. He explained that this evolution is a "sign of the times," intended to increase the number of logged-in, more active users, which in turn benefits the company's ad revenue.
The market's reaction was swift and critical, with several analysts downgrading the stock. Citizens, for instance, commented that "search changes highlight the problem with selling content to Google" and raised concerns that worsening referral problems, combined with uncertainty around user growth due to the new login requirement, will "put more pressure on user monetization."
A detailed stock chart is available, illustrating Reddit's performance since its IPO, with the recent plunge marking its worst single-day performance to date.
— Jonathan Vanian contributed to this report.
