Reddit Shares Slide as Weak Q4 Guidance and Google Traffic Decline Prompt Login Requirement Test
Reddit shares fell after the company issued fourth-quarter revenue guidance that missed Wall Street expectations and disclosed that search referral traffic from Google has dropped meaningfully in the third quarter, a trend CEO Steve Huffman said will persist into the fourth quarter. In response, Reddit is testing a plan that would require users to log in to access the platform, ending the open, logged-out browsing model that has defined the site since its founding.
Reddit's third-quarter revenue grew 53% year-over-year, a notable deceleration after eight consecutive quarters of growth above 60%, a streak the company had maintained through its second-quarter report in July. For the fourth quarter, Reddit guided to sales between $1 billion and $1.03 billion, below analyst estimates of $1.05 billion. Huffman defended the outlook as "still a strong guide," noting that Reddit continues to grow at what he called an industry-leading rate despite the search referral headwinds.
Average revenue per user came in at $6.87 for the third quarter, topping the $6.50 analysts had projected. The company's "other revenue" category, which includes data-licensing deals, rose 35% year-over-year to $48 million. OpenAI and Google remain Reddit's two largest data-licensing partners, though Huffman said the company is still negotiating terms with Google and will only renew the arrangement if it makes sense for Reddit, citing unspecified strategic considerations.
Huffman framed the push toward requiring logins as central to Reddit's strategy of building daily habitual use among its audience. He said the company's focus is on growing app usage and logged-in traffic, both of which he said are rising quarter over quarter, because registered users generate more direct traffic and are more valuable to advertisers seeking targeted ad placements. The bulk of Reddit's revenue, he said, already comes from app and logged-in users.
The CEO, a Reddit co-founder, acknowledged the shift away from open access is a significant departure from his own history with the platform, saying he "grew up on the open Internet" and has personally been responsible for Reddit remaining one of the last major platforms offering largely unrestricted logged-out access. He said he expects users to eventually accept the change as a natural evolution of how platforms operate.
On the earnings call, Huffman drew a parallel to a period roughly 11 years ago when he returned to lead Reddit following Ellen Pao's departure as chief executive in 2015. He said that period involved deep conversations within the company about Reddit's identity and purpose, conversations he said are happening again now as the platform grapples with AI's effect on user growth and discovery. Reddit plans to keep investing in marketing to counter the decline in search-driven traffic. Huffman reiterated that Reddit's mission centers on community and conversation, distinguishing it from both traditional social media and AI search products even as those categories increasingly overlap with Reddit's business.
Impact
The slowdown in revenue growth and the softer fourth-quarter guidance sent Reddit shares lower, reflecting investor concern over the company's reliance on search referral traffic as a growth driver. The decline in Google-driven traffic adds pressure on Reddit to convert more visitors into logged-in users, who are more monetizable for advertisers. The data-licensing business, including deals with OpenAI and Google, remains a growing but still comparatively small revenue stream at $48 million for the quarter, and the outcome of ongoing negotiations with Google carries implications for that segment's trajectory.
What to watch
Industry professionals should watch how Reddit's login requirement test affects user growth metrics and advertiser demand in coming quarters, as well as whether the company renews its data-licensing agreement with Google on terms it considers favorable. Continued commentary from Huffman on search referral trends will signal whether the pressure from AI search and declining Google traffic persists or stabilizes. Marketing spend levels aimed at offsetting referral losses, along with quarter-over-quarter shifts in logged-in versus logged-out traffic, will be key indicators of whether Reddit's strategic pivot is gaining traction.
Companies that depend on search visibility, like Reddit, often explore tools such as an seo backlinks builder to strengthen organic traffic when referral trends shift.
Reddit’s traffic dependence on Google has made it a valuable destination for sites that want to get backlinks from active community discussions.
Source: CNBC
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