Reddit Stock Tumbles as User Growth Falls Short of Expectations
Reddit’s stock price plummeted over 15% in after-hours trading following the release of its fourth-quarter earnings report, which revealed user growth below Wall Street expectations. The social media platform’s shares, which had peaked at $225 in February, have experienced significant volatility since its initial public offering in March 2024.
The company reported 101.7 million daily active unique users in Q4, representing a 39% increase year-over-year. However, this figure fell short of analysts’ estimates of 103.8 million users. For Reddit, which relies heavily on advertising revenue, user growth is a critical metric for investors.
Despite the disappointing user numbers, Reddit’s Q4 revenue reached $428 million, marking a 71% increase from the previous year. Advertising accounted for 92% of this revenue, with the remainder coming from content licensing and other sources.
CEO Steve Huffman addressed the challenges faced by the platform, citing “volatility” in traffic due to recent changes in Google’s search algorithm. These changes primarily affected “logged-out users,” while logged-in users grew by 27% in 2024. Huffman also noted an increase in Google search queries including “Reddit,” suggesting continued interest in the platform’s content.
In response to these challenges, Reddit has implemented strategic adjustments and increased investments in artificial intelligence. The company has shifted its approach to show all public posts to logged-out users and is developing Reddit Answers, an AI-powered search tool. Additionally, Reddit has secured content licensing deals with tech giants Google and OpenAI, with Google reportedly paying $60 million annually for data access.
Despite the recent stock drop, Reddit’s market value has increased by 32% since its IPO, which was initially priced at $46 per share. As the company navigates the evolving digital landscape, investors will be closely watching its ability to drive user growth and capitalize on AI-related opportunities in the coming quarters.
