Reddit stock drops 15% after weak user growth report
Reddit stock falls as daily active users miss expectations
Reddit’s stock dropped over 15% on Wednesday after the company reported lower-than-expected user growth in its first earnings report since going public in March.
The platform recorded 101.7 million daily active unique users (DAUs) in Q4, marking a 39% year-over-year increase but still missing analysts' projections of 103.8 million, reports Business Insider.
User growth is critical for Reddit, as the company generates almost all of its revenue from advertising. In its IPO filing, Reddit highlighted the importance of maintaining a growing user base to attract advertisers.
Financial Performance and Revenue Breakdown
Despite the user growth miss, Reddit’s Q4 revenue surged 71% YoY to $428 million, surpassing expectations. Around 92% of this revenue came from advertising, while the remaining portion came from content licensing deals and other sources.
CEO Steve Huffman acknowledged that Google’s search algorithm changes affected Reddit’s traffic in Q4, primarily impacting logged-out users—those who browse the platform without an account. However, he downplayed concerns, stating that traffic fluctuations from search engines are common and had no material impact on revenue.
"We see volatility from Google all the time, as does everybody," Huffman said during the earnings call. Reddit also reported that logged-in user growth reached 27% in 2024, indicating stronger engagement from registered users.
AI and Content Licensing Deals
To enhance user experience and engagement, Reddit has been investing in AI-driven tools, including Reddit Answers, an AI-powered search feature that compiles responses based on community input.
Additionally, Reddit has capitalized on content licensing agreements with major AI firms like Google and OpenAI. These deals allow AI models, including Google’s Gemini and OpenAI’s ChatGPT, to train on Reddit’s data.
Reminder, Coca-Cola exceeded expectations with $11.5 billion in revenue and $0.55 EPS, driven by price hikes and volume growth. The company expects 5-6% organic revenue growth in 2025.
