Reddit shares plunge 29% on weak Q4 outlook as Google search referrals fall

Reddit shares plunged 29% on Friday, 30 October, to $91.30 after weak Reddit Q4 earnings guidance, with the company warning that user growth could weaken in the fourth quarter. The sell-off overshadowed third-quarter results that beat estimates. If the stock closes at that level, the fall would be Reddit’s worst single-day drop since its market debut in March 2024.

Reddit Q4 Earnings: key numbers

• Q3 revenue: $895 million, up 53% year on year and above the Bloomberg consensus of $869.6 million
• Q3 net income: $283 million, or $1.40 per diluted share, against analyst expectations of $272.6 million
• Adjusted EBITDA: $402 million, up 70%, against an estimate of $398.5 million
• Q4 revenue forecast: $1 billion to $1.03 billion, below the consensus of $1.05 billion
• Global daily active users: 130.3 million, missing expectations; US daily active users fell 2% to 50.7 million

The traffic problem

The forecast turned on user numbers. Reddit said search referrals from Google fell by more than one million on average each week during October. Chief Executive Steve Huffman said daily active unique visitors could fall by a low double-digit percentage in the current quarter from about 130 million if referral traffic keeps weakening.

Reddit has blamed changes to Google’s search experience for sending fewer users to its platform. Huffman argued that Google’s AI-powered search answers questions directly, which reduces the need to click through to websites and online communities. He also said Google’s AI search was not directing users to Reddit even though it continues to crawl the site’s content.

Why the revenue outlook matters

The revenue forecast raised concerns about whether Reddit’s advertising business can keep its growth momentum. Analysts cut their price targets after the outlook, warning that declining referrals could threaten user growth and future advertising revenue.

Other disclosures

Reddit said in a filing that it extended its cloud services agreements with Amazon Web Services and Google through 2029. It committed to spend $880 million with AWS and $580 million with Google over three years. The company also said it will test requiring users to log in to see content.

What happens next

The share reaction shows how much Reddit depends on search referrals for growth. The key test is whether the referral decline continues into the fourth quarter, the period the company flagged in its outlook. Investors will watch Reddit’s daily active user numbers and its advertising revenue against the $1 billion to $1.03 billion forecast.

Read more quarterly results news on ArthaWire.