Reddit's stock experienced a dramatic 30% drop on Friday, primarily due to a disappointing forecast for fourth-quarter sales, which are expected to be between $1 billion and $1.03 billion, falling short of analysts' expectations of $1.05 billion. Although Reddit reported a 53% increase in Q3 sales year-over-year, this growth was weaker than in previous quarters.
The decline in stock price is significant as it positions Reddit for its steepest daily loss since its public debut. CEO Steve Huffman attributed part of the sales outlook to a notable decrease in search-referral traffic from Google, which he linked to the rise of AI-driven search results.
In a shift that could impact user engagement, Reddit announced plans to test requiring users to log in to access content, a move that contrasts with its historically open access model. Analysts have reacted by downgrading the stock, with Citizens highlighting that changes in search traffic could complicate Reddit's ability to monetize content effectively.
This situation raises concerns about user growth and the overall monetization strategy as the platform navigates these evolving challenges