Reddit Stock Plummets As User Growth Falls Short Of Expectations

Reddit's stock took a significant hit recently, tumbling nearly 17% in after-hours trading following the release of its fourth-quarter earnings report. Despite reporting a substantial increase in revenue, the social media platform's user growth fell short of analyst expectations, raising concerns about its future performance.

Peep into The Article

• Reddit's stock dropped 15% after reporting lower-than-expected user growth.

• The platform averaged 101.7 million daily active unique users, missing estimates of 103.8 million.

• Revenue for Q4 reached $427.7 million, a 71% increase year-over-year.

• CEO Steve Huffman attributed user growth issues to a recent Google algorithm change.

• The company forecasts Q1 2025 revenue between $360 million and $370 million.

Earnings Report Overview

In its fourth-quarter earnings report, Reddit announced a revenue of $427.7 million, which marked a 71% increase from the previous year. The earnings per share (EPS) also exceeded expectations, coming in at $0.36 compared to the anticipated $0.25. However, the number of daily active unique users, a critical metric for the platform, rose by only 39% year-over-year, totaling 101.7 million, which was below the analysts' forecast of 103.8 million.

Impact of Google Algorithm Change

CEO Steve Huffman noted that the decline in user growth was partly due to a recent change in Google's search algorithm, which affected how often Reddit appeared in search results. This change particularly impacted logged-out users, who browse the platform without an account. Despite this setback, Huffman expressed confidence in the platform's ability to recover, stating that traffic from search has shown signs of improvement in the first quarter of 2025.

Future Projections

Looking ahead, Reddit has projected its first-quarter revenue to be between $360 million and $370 million, surpassing the consensus estimate of $358.44 million. The company also expects adjusted EBITDA to fall between $80 million and $90 million. This optimistic outlook is bolstered by the platform's ongoing investments in artificial intelligence and partnerships with major tech companies like Google and OpenAI.

Conclusion

While Reddit's recent earnings report showcased impressive revenue growth, the decline in user growth has raised concerns among investors. The company's reliance on advertising revenue makes user engagement a critical factor for its success. As Reddit navigates the challenges posed by external factors like Google's algorithm changes, its ability to adapt and innovate will be crucial in maintaining investor confidence and ensuring long-term growth. Another company with stock hit this year is Amazon