Reddit (RDDT, Financial) experienced a significant stock drop, primarily due to its fourth-quarter user growth falling short of Wall Street expectations. The company, newly public, struggles to keep pace with digital advertising giants like Meta Platforms (META) and Google (GOOGL). Reddit's Q4 report revealed daily active users at 101.7 million, missing analysts' forecasts of 103.8 million.
Despite this, Reddit's Q4 revenue surged 71.3% year-over-year to $427.7 million, surpassing the anticipated $408.9 million. The company's GAAP earnings per share stood at $0.36, beating the expected $0.25. Furthermore, Reddit's revenue guidance for the next quarter is positive, estimating $360-370 million, exceeding the average analyst prediction of $360.3 million. However, concerns remain about user growth metrics.
The slowdown in user growth was attributed to Google's algorithm changes affecting search traffic, as Google's dominance in search traffic significantly impacts Reddit. Reddit's CEO, Steve Huffman, acknowledged the impact on U.S. users not logged into the platform but noted improvements in the first quarter.
After the report, Reddit's stock fell nearly 20% in after-hours trading, settling at a 15% decline. Since its IPO in March last year, Reddit's stock has increased over sixfold, outperforming the market with a 30% rise this year. Reddit has been investing heavily in advertising technology to compete with Google and Meta, introducing new ad formats and partnerships.
Reddit is also diversifying beyond advertising, signing a $203 million data licensing deal with partners like Google and OpenAI. The company plans to continue investing in its AI models and enhance its search capabilities, recently launching an AI chatbot to improve user engagement.
