Reddit Shares Plummet as User Growth Misses Expectations

Reddit Inc. (RDDT) shares took a significant tumble in extended trading on Wednesday, February 12, 2025, following the company's fourth-quarter earnings report. The social media platform's stock fell more than 15% after the company reported a miss in daily active unique visitors (DAUq), despite beating revenue and earnings expectations.

Reddit's DAUq grew 39% year-over-year to an average of 101.7 million for the fourth quarter, but this figure fell short of Wall Street estimates of 103.1 million. The company attributed the slower user growth to a Google search algorithm change that impacted search traffic, particularly among logged-out users in the U.S. However, Reddit's teams were able to adapt to these changes effectively, and the impact was short-lived.

Despite the miss in user numbers, Reddit reported strong financial results. The company's revenue jumped 71% in the quarter from $250 million a year earlier, the fastest rate of growth for any quarter since 2022. Net income almost quadrupled to $71 million or 36 cents a share, from $18.5 million, or breakeven on a per-share basis, a year earlier. Reddit also reported adjusted earnings of $154 million in the fourth quarter, topping analysts' expectations of $128 million.

Looking ahead, Reddit expects first-quarter revenue of $360 million to $370 million, compared to $243 million a year earlier and above the analyst consensus at the midpoint. However, the company's shares plunged 15% to $183.85 in extended trading Wednesday following the release, as investors fretted over the miss in daily active unique visitors.

Reddit's reliance on Google search traffic has been a significant factor in its user growth and overall business strategy. The company has benefited from Google search updates and internal site improvements that have helped it gain a significant amount of new and returning users, which the social company refers to as logged-out users, over the past year and a half. Reddit has been working to convince logged-out users to create accounts as logged-in users, which are more lucrative for its business.

However, the recent Google search algorithm change highlights the vulnerability of this strategy, as any future changes could negatively impact Reddit's user base and, consequently, its advertising revenue. Reddit's user growth slowdown could also impact its advertising revenue and market position, as advertisers may be less inclined to spend on a platform with stagnant or declining user numbers.

To mitigate these long-term implications, Reddit should focus on diversifying its traffic sources and exploring new revenue streams. This could involve investing in artificial intelligence tools like Reddit Answers, expanding its partnerships with other companies, or developing new features that attract and retain users. By diversifying its revenue streams and reducing its dependence on Google search traffic, Reddit can better position itself for long-term growth and success.



In conclusion, Reddit's shares plummeted as investors fretted over the miss in daily active unique visitors. The company's reliance on Google search traffic has both positively and negatively impacted its user growth and overall business strategy. To overcome these challenges, Reddit should focus on diversifying its traffic sources and exploring new revenue streams to maintain its competitiveness in the social media landscape.