Steve Huffman, co-founder and CEO of Reddit, speaks during WSJ Tech Live conference hosted by the Wall Street Journal at the Montage Laguna Beach in Laguna Beach, California, on October 21, 2024.
Frederic J. Brown | Afp | Getty Images
Reddit shares dropped more than 6% Thursday after the social media company fell short of Wall Street’s user estimates in the fourth quarter.
The company reported a 39% rise in global daily active uniques from a year ago to 101.7 million, below the Wall Street estimate of 103.1 million.
In a letter to shareholders, CEO Steve Huffman said that Reddit experienced some “volatility” in user growth as a result of a Google search algorithm change. He noted that the tweak occurs twice a year and primarily impacts logged-out users who visit the site without an account, but search-related traffic has since recovered into the first quarter.
“What happened wasn’t unusual — referrals from search fluctuate from time to time, and they primarily affect logged-out users,” Huffman wrote. “Our teams have navigated numerous algorithm updates and did an excellent job adapting to these latest changes effectively.”
Despite the disappointing user figure, Reddit surpassed Wall Street’s top-and-bottom line estimates for the period, with earnings of 36 cents per share on $428 billion in sales. Analysts polled by LSEG had forecast earnings of 25 cents per share and $405 billion in revenue. Sales also grew 71% from a year ago.
Reddit also offered better-than-expected revenue guidance for the first quarter, while net income roughly quadrupled to $71 million, or 36 cents per share.
Many Wall Street analysts stood by the stock despite the Google issue, with Morgan Stanley analyst Brian Nowak recommending that investors buy the dip. Wells Fargo analyst Ken Gawrelski maintained his overweight rating, but said a full bounce back in the stock may depend on steady consecutive U.S. user growth.
“We like Reddit’s growth but see balanced risk reward,” wrote Bank of America’s Justin Post. He cited a high valuation, dependence on Google and a potential revenue deceleration later this year among the reasons for his neutral rating.
Reddit’s stock has climbed since its initial public offering in March 2024 at $34 a share. Shares are up 24% year to date.
— CNBC’s Jonathan Vanian contributed reporting