Reddit (RDDT) shares plunged nearly 16% in postmarket trading on Wednesday after the company’s fourth-quarter earnings fell short of investor expectations.
The stock rebounded during intraday trading, briefly turning positive, but remained down 4.5% at the time of writing.
While revenue surged 71% year over year to $427.7 million—exceeding Wall Street’s forecast of $405.5 million—user growth fell short. Daily active unique users reached 101.7 million, up 39% from the prior year but below the 103.8 million analysts had anticipated.
Earnings per share (EPS) came in at $0.36, surpassing the estimated $0.25. However, the stock initially plummeted as much as 18% following the report before recovering slightly. By mid-morning Thursday, shares were down 1.43% at $213.37.
Google Algorithm Changes Weigh on Traffic
A key factor in Reddit’s user growth shortfall was a late-quarter change in Google’s (GOOG) search algorithm, which impacted traffic from non-logged-in users. Alphabet Inc.’s Google has historically accounted for as much as 50% of Reddit’s daily traffic, making the platform vulnerable to search engine shifts.
CEO Steve Huffman acknowledged the impact but downplayed long-term concerns, stating, “We see volatility from Google all the time… there’s zero concern from us in this department.” He also noted that traffic had already begun to recover in the first quarter.
To reduce reliance on Google, Reddit is investing in its own search capabilities, including an AI-powered chatbot, Reddit Answers, aimed at keeping users engaged on the platform rather than seeking information elsewhere.
AI Deals and Ad Growth Support Long-Term Optimism
Despite the short-term volatility, analysts remain largely optimistic about Reddit’s long-term prospects. Advertising revenue climbed 60% year over year to $394.5 million, reflecting the success of new ad formats and partnerships with major brands. Additionally, Reddit’s data licensing deals—totaling $203 million in agreements with Google, OpenAI, and other AI companies—continue to provide an alternative revenue stream.
Reddit has been one of the top-performing IPOs in recent years, surging over 360% since its market debut last March. While JPMorgan (JPM) maintained a neutral stance, raising its price target from $142 to $185, Raymond James’ Josh Beck called the post-earnings dip a “buying opportunity,” setting a price target of $250.
Looking ahead, Reddit forecasts first-quarter revenue between $360 million and $370 million, exceeding analyst expectations. Adjusted EBITDA is projected between $80 million and $90 million, further bolstering confidence in the company’s growth trajectory.
Despite short-term volatility, Reddit remains a high-growth player in the digital advertising and AI-driven content space, with ongoing investments aimed at sustaining its momentum.
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Earnings per share (EPS) came in at $0.36, surpassing the estimated $0.25. However, the stock initially plummeted as much as 18% following the report before recovering slightly. By mid-morning Thursday, shares were down 1.43% at $213.37.
Google Algorithm Changes Weigh on Traffic
A key factor in Reddit’s user growth shortfall was a late-quarter change in Google’s (GOOG) search algorithm, which impacted traffic from non-logged-in users. Alphabet Inc.’s Google has historically accounted for as much as 50% of Reddit’s daily traffic, making the platform vulnerable to search engine shifts.
CEO Steve Huffman acknowledged the impact but downplayed long-term concerns, stating, “We see volatility from Google all the time… there’s zero concern from us in this department.” He also noted that traffic had already begun to recover in the first quarter.
To reduce reliance on Google, Reddit is investing in its own search capabilities, including an AI-powered chatbot, Reddit Answers, aimed at keeping users engaged on the platform rather than seeking information elsewhere.
AI Deals and Ad Growth Support Long-Term Optimism
Despite the short-term volatility, analysts remain largely optimistic about Reddit’s long-term prospects. Advertising revenue climbed 60% year over year to $394.5 million, reflecting the success of new ad formats and partnerships with major brands. Additionally, Reddit’s data licensing deals—totaling $203 million in agreements with Google, OpenAI, and other AI companies—continue to provide an alternative revenue stream.
Reddit has been one of the top-performing IPOs in recent years, surging over 360% since its market debut last March. While JPMorgan (JPM) maintained a neutral stance, raising its price target from $142 to $185, Raymond James’ Josh Beck called the post-earnings dip a “buying opportunity,” setting a price target of $250.
Looking ahead, Reddit forecasts first-quarter revenue between $360 million and $370 million, exceeding analyst expectations. Adjusted EBITDA is projected between $80 million and $90 million, further bolstering confidence in the company’s growth trajectory.
Despite short-term volatility, Reddit remains a high-growth player in the digital advertising and AI-driven content space, with ongoing investments aimed at sustaining its momentum.
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