Reddit Shares Drop Over 15% After Missing User Growth Estimates

Reddit Inc. saw its stock plummet more than 15% on Wednesday after the company reported lower-than-expected user numbers in its fourth-quarter earnings, despite exceeding revenue and profit expectations.

Earnings Highlights vs. Analyst Estimates (LSEG)

• Earnings per share: $0.36 (vs. $0.25 expected)
• Revenue: $428 million (vs. $405 million expected)
• Daily Active Unique Users (DAUq): 101.7 million (vs. 103.1 million expected)

Google Algorithm Change Affects User Growth

Reddit’s global DAUq rose 39% year-over-year, but still fell short of Wall Street’s projections. CEO Steve Huffman attributed this shortfall to volatility caused by a Google Search algorithm change.

“What happened wasn’t unusual — referrals from search fluctuate from time to time, and they primarily affect logged-out users,” Huffman wrote in a letter to shareholders. However, he reassured investors that search-driven traffic had already rebounded in Q1 2025.

Despite this setback, Reddit has been working to convert logged-out users into logged-in users, who generate more revenue for the platform. Logged-in DAUq grew 27% year-over-year to 46.1 million, while logged-out DAUq increased 51% to 55.6 million.

Strong Revenue Growth and Optimistic Outlook

While user growth disappointed, Reddit’s revenue surged 71% from the previous year, marking its fastest quarterly growth rate since 2022. The company’s Q1 2025 revenue forecast of $360 million to $370 million also exceeded analyst expectations of $358 million.

Net income soared to $71 million, or $0.36 per share, nearly quadrupling from $18.5 million the year before. Adjusted earnings reached $154 million, surpassing analysts’ forecasts of $128 million.

Reddit’s Market Performance

Since its March 2024 IPO at $34 per share, Reddit’s stock had surged over sixfold to $216.47 before the after-hours selloff. Despite the decline, shares remained up 32% for the year.

Tech Advertising Industry Trends

Reddit’s earnings come amid strong digital advertising growth across the industry:

• Amazon: $17.29 billion in Q4 ad revenue (+18% YoY)
• Pinterest: $1.15 billion in Q4 revenue (+18% YoY)
• Alphabet (Google): $72.46 billion in Q4 ad revenue (+11% YoY), YouTube ads up 14%
• Meta (Facebook, Instagram): $48.39 billion in Q4 revenue (+21% YoY)
• Snap: $1.56 billion in Q4 revenue (+14% YoY)
• Microsoft: Advertising revenue up 21% YoY

Despite the short-term drop in stock price, Reddit’s strong revenue growth and profitability signal long-term potential, as the company refines its strategy to grow and monetize its user base.

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