Reddit Shares Slump 6% on Daily Active User Miss

Reddit shares tumbled 6% in premarket trading on Thursday after the social media firm missed expectations for daily active unique visitors, hit by a change in Google's search algorithm. The algorithm change impacted how frequently the platform popped up in Google search results, leading to a decline in user growth.



The user growth issues caused by the algorithm change might keep Reddit's stock under pressure in the near term, Morgan Stanley analysts said. However, Piper Sandler analysts described the user growth issues as an aberration and expect Reddit's stock to recover.

Reddit experienced some volatility with Google search in the fourth quarter, triggered by a periodic algorithm change, but traffic from the search has recovered in the first quarter, CEO Steve Huffman said in a letter to shareholders. Daily active unique visitors rose 39% to 101.7 million in the fourth quarter for Reddit, but missed analysts' average estimate of 103.3 million, according to data compiled by LSEG. The growth has also slowed sequentially.

Despite the hiccup, Reddit's fourth-quarter revenue beat estimates and the company forecast an upbeat first-quarter revenue. Reddit has been reaping the rewards of the artificial-intelligence content licensing deals with Alphabet's Google and Microsoft-backed OpenAI.

At least six brokerages raised the price target for the stock and one cut, following the results. Reddit has a 12-month forward price-to-earnings ratio of 242.7, compared with Snap's 28.8 and Pinterest's 20.7.

Reddit's user engagement statistics show that the platform boasts a sizable user base with 4.82 billion monthly visitors, each spending an average of 17 minutes and 53 seconds per visit. The DataReportal report puts Reddit as the seventh most visited site on the internet as of January 2023, with 1.25 billion unique monthly visitors. SEMrush ranked it as the ninth most visited site, while SimilarWeb ranks it as the 19th most visited site on the internet globally.

Reddit's user demographics show that the United States (42.95%), Canada (5.92%), and the United Kingdom (5.46%) are the top countries where Reddit's audience is primarily located. India comprises 5.18% of Reddit's audience, which is over 280 million monthly active users. Germany makes up 3.49% of Reddit's users, with 188.9 million monthly active users.

Mobile devices account for the majority of Reddit's traffic, with 75.5% of users accessing the site via smartphones. At the same time, Reddit's desktop traffic accounts only for 24.5% of total visits, according to SEMrush.



Reddit's stock price forecast shows that the average analyst target is $163.32, which is -21.09% lower than the current stock price of $206.98. The average target predicts a decrease of -21.09% from the current stock price. Analysts' consensus rating is "Buy," indicating that analysts believe this stock is likely to outperform the market over the next twelve months.

In conclusion, Reddit's shares slump 6% on daily active user miss, but the company's strong revenue performance and AI content licensing deals with Google and OpenAI suggest a potential recovery. Reddit's user engagement statistics and demographics show a strong and diverse user base, with the majority of traffic coming from mobile devices. Despite the recent setback, Reddit's stock price forecast indicates a positive outlook from analysts.