Shares of Reddit plunged 29.22% on Friday, marking its steepest decline since going public in 2024, following a disappointing outlook for the fourth quarter. The sharp drop surpassed the previous record loss of 20.99% set on July 31.
The social media platform forecast Q4 sales between $1 billion and $1.03 billion, falling short of analysts’ expectations of $1.05 billion. Despite reporting a 53% year-over-year increase in Q3 sales, the growth rate was slower compared to earlier quarters, though it still managed to exceed Wall Street’s earnings and revenue projections.
This downturn coincides with a notable shift in search referral traffic driven by the rise of Google’s AI Overview. In a CNBC interview, Reddit CEO Steve Huffman acknowledged that referral traffic from Google “went down meaningfully” during the quarter due to AI advancements.
In a significant strategic move, Reddit announced plans to test a login requirement for accessing content, departing from its tradition of open, community-driven discussions. This change aligns with efforts to boost engagement among logged-in users, which directly benefits its advertising model, as explained by Huffman. He noted, “Reddit is the last platform to provide basically unfettered logged-out access, and that’s largely because of me. I’ve been holding that line.” He expects users to recognize this as “a sign of the times” and an evolution in how digital platforms operate.
Analysts have responded negatively to the developments, with several downgrading the stock. Citizens analyst commented that “search changes highlight the problem with selling content to Google” and warned that increasing referral challenges introduce uncertainty around user growth, especially given the new login requirement, thereby intensifying pressure on the company’s user monetization strategies.
— CNBC’s Jonathan Vanian contributed to this report.
