Reddit's stock dropped 30.44% as CEO warns of declining Google search traffic affecting user growth and revenue forecasts.
Reddit's Stock Takes a Hit
Reddit's stock plummeted by 30.44% to $90.15 on Friday, exacerbating a significant weekly decline of 44%. This sell-off follows a warning from CEO Steve Huffman regarding a decline in referral traffic due to Google's AI-enhanced search features.
Traffic and User Growth Concerns
During an earnings call, Huffman disclosed that Google search referrals had decreased by over one million weekly in October. He cautioned that if this trend persists, Reddit could experience a low double-digit percentage drop in daily active users in the fourth quarter, which currently stands at approximately 130 million.
While Reddit reported a robust 53% revenue growth in the third quarter, reaching $895 million, its forecast for the current quarter was disappointing, estimating revenues between $1 billion and $1.03 billion. Analysts had anticipated around $1.05 billion, raising concerns about the platform's future growth.
Shift in User Engagement
Reddit has historically relied on Google searches to attract visitors, but the advent of AI-generated summaries and answers directly in search results is changing the landscape. Users are finding information without visiting Reddit, which could negatively impact its advertising revenue. Huffman indicated that this trend is affecting all media sites, creating challenges for user acquisition and engagement.
Future Strategies and Partnerships
In response, Reddit is moving towards a logged-in user experience, which it plans to test in select markets. Additionally, the company has entered into significant partnerships with Google and OpenAI, allowing these firms to utilize Reddit's content for AI training while providing Reddit with access to advanced technologies.
Despite these efforts, Reddit's stock has struggled. The company's stock price is now well below its 50-day moving average of approximately $149.80, indicating a bearish trend. Analysts note that a recovery to previous levels appears increasingly unlikely in the near term.
