Reddit The stock price plummeted by 29.22% on Friday, marking the largest decline for the company since it went public in 2024. The reason is that the company forecast weak sales in the fourth quarter in its latest financial report.
The previous record low occurred on July 31, when the stock fell by 20.99%.
The social media company expects its fourth-quarter sales to range between $1 billion and $1.03 billion on Thursday, which is lower than analysts' forecast of $1.05 billion. Reddit announced that third-quarter sales increased by 53% year-on-year, a slower growth rate than in previous quarters, but its earnings per share and revenue both exceeded Wall Street's expectations.
At the time of this financial report release, the company's search referral traffic has changed due to the rise of Google AI Overview. Reddit's CEO, Steve Huffman, stated in an interview with CNBC that due to artificial intelligence, search referral traffic from Google has "significantly decreased" this quarter.
On Thursday, it was also announced that tests would be conducted requiring users to log in before accessing content, which represents a significant change for a website that has become synonymous with open internet content through community discussions. Google is said to be promoting a shift in search results at the same time as this measure, with the aim of increasing the number of logged-in users. These users are more active on the platform, which in turn helps the company's advertising business.
Huffman said, " Reddit is the last platform that still basically allows free access without logging in, and to a large extent, that's because of me. I have always insisted on this bottom line." He also stated, "I think users will probably understand this just like I do, which means that times are changing. This represents an evolution in the way these platforms operate."
Several analysts downgraded their ratings on the stock after the Reddit disappointing earnings announcement. Citizens pointed out that "the changes in search highlight the issues with selling content to Google," and stated that as referral problems worsen and there is uncertainty around user growth due to the switch in login requirements, "this puts greater pressure on user monetization."
CNBC's Jonathan Vanian has contributed to this report.
