Reddit’s slowing user growth tests Wall Street’s sky-high expectations
The social media platform pointed a finger in Google’s direction for its underwhelming eyeballs.
Reddit’s tenure as an IPO and social media darling received a startling downvote on Wednesday after the site reported disappointing user growth last quarter, sending shares on a 16% downward spiral in after-hours trading.
The site’s daily active users, a key growth metric for the company, rose 39% to 101.7 million in the fourth quarter, missing Wall Street estimates of 103.8 million. Reddit pointed to a change in Google’s search algorithm during the quarter, which made for “some volatility” that has since subsided, the company said.
Reddit had previously benefited from deals with Alphabet’s Google and OpenAI that put its pages higher in search and ChatGPT results, bringing in new users. The tough part, though, has been getting those logged-out users — who typically spend less time on the site, thus carrying less ad revenue — to actually make an account. The majority of Reddit’s daily active users aren’t logged in, making up 55% of those that visited the platform daily in Q4.
The site’s slowing user growth now brings its strikingly steady rise into question. Unlike a host of other platforms that have rapidly skyrocketed in popularity only to fall just as quickly, losing users’ interest just years if not weeks later, Reddit has seen gradual growth since coming online two decades ago.
The platform beat on revenue, however, reporting quarterly sales of $427.7 million, up 71% from a year prior and above estimates of $405.5 million according to analysts polled by Bloomberg. Adjusted earnings per share of $0.85 also handedly exceeded forecasts for $0.48.
Part of that growth comes from its booming ad business, which rose 60% on the year to $394.5 million in the fourth quarter, coming in above estimates of $367.3 million. Its “other” revenue, which includes its comparatively small but growing AI licensing business, missed estimates to total $33.2 million, making up about 8% of the company’s total revenue for the quarter.
Looking forward, the company said it expects revenue to range from $360 million to $370 million for the current quarter, above analyst expectations of $359 million.
Kelly Cloonan is a journalist who has written for Business Insider and Fast Company.
