Shares of Reddit plunged 29% in Friday’s trade on October 30, falling to $91.30 apiece, after the social networking platform warned that user growth could weaken further in the fourth quarter as declining traffic from Google Search weighs on its audience.
The warning overshadowed the company’s stronger-than-expected third-quarter results. If stock close at the same level, the decline could mark Reddit’s worst single day fall since its stock market debut in March 2024.
The company forecast fourth-quarter revenue of $1 billion to $1.03 billion, below the Bloomberg consensus estimate of $1.05 billion. The outlook raised concerns about whether its advertising business can maintain its growth momentum amid changes in online search.
Chief Executive Steve Huffman said daily active unique visitors could decline by a low double-digit percentage in the current quarter from approximately 130 million if referral traffic continues to weaken.
Reddit has increasingly blamed changes to Google’s search experience for reducing the number of users directed to its platform.
The company’s warning highlights how Google’s shift towards AI-powered search, which can answer queries directly, is disrupting the flow of traffic to websites that have traditionally relied on the search engine to attract users.
AI-powered search features can provide answers directly, potentially reducing the need for users to click through to websites and online communities. Huffman said search engine referrals to Reddit had declined by more than one million on average each week during October.
He also argued that Google’s AI search experience was failing to direct users to the platform despite continuing to crawl its content.
The weak revenue forecast also prompted analysts to cut their price targets, warning that declining Google Search referrals could threaten Reddit’s user growth and future advertising revenue.
Separately, Reddit said in a filing that it had extended its cloud services agreements with Amazon Web Services and Google through 2029, committing to spend $880 million and $580 million, respectively, over three years.
Reddit Q3 results
Reddit reported third-quarter revenue of $895 million, up 53% year over year and above the Bloomberg consensus estimate of $869.6 million.
Net income climbed to $283 million, or $1.40 per diluted share, compared with analyst expectations of $272.6 million. Adjusted EBITDA increased 70% to $402 million, exceeding the $398.5 million estimate.
However, the latest revenue growth marked a slowdown from the company’s previous performance, according to news agency Invezz.
Reddit’s daily active users in the US declined 2% year over year to 50.7 million, while global daily active users reached 130.3 million, missing expectations.
Management warned that if October’s decline in search referrals persists, total daily active users could fall by a low double-digit percentage in the fourth quarter from a base of approximately 130 million.
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