Reddit missed market estimates for daily active unique visitors in the fourth quarter on Wednesday, hit by a change in Google’s search algorithm that impacted how often the social media platform appeared in the search results, sending its shares down 15% in extended trading.
The San Francisco-based company’s stock, which debuted in March 2024, gained nearly five-fold last year.
Reddit experienced some volatility with Google search later in the fourth quarter, triggered by a periodic algorithm change, but traffic from search has recovered so far in the first quarter, CEO Steve Huffman said in a letter to shareholders.
The algorithm changes impacted “logged-out users,” who browse the platform without signing into an account, Huffman added.
Its daily active unique visitors rose 39% to 101.7 million in the fourth quarter ended December 31, but missed analysts’ average estimate of 103.3 million, according to data compiled by LSEG. Their growth has also slowed sequentially.
“Reddit shares are down in part due to Daily Active Users missing expectations, but it’s not the best reason for anyone to lose faith in the company,” said Jeremy Goldman, senior director of briefings at eMarketer.
“If Reddit keeps expanding internationally and builds on its AI advantage, it could go from a promising upstart to a true digital advertising heavyweight.”
The company has been benefiting from AI deals with Alphabet’s Google and Microsoft-backed OpenAI and its conversation placement ads, where brands can advertise directly into discussion threads within interest-based communities known as subreddits.
That helped Reddit forecast first-quarter revenue of $360 million to $370 million, which was above an average estimate of $358.1 million.
Referring to an opportunity of data licensing deals, Huffman said, “we are still talking to some of the big players.”
Revenue rose 71% to $427.7 million during the fourth quarter, beating estimates of $405.3 million, owing to the holiday shopping season, when brands spend heavily to promote their products and services. Its profit per share of 36 cents exceeded estimates of 25 cents.
Reddit’s global average revenue per user increased 23% to $4.21.
Google did not immediately respond to a request for comment on the algorithm changes. Reuters