Reddit Shares Drop 15% Despite Record 71% Surge in Sales

• Reddit stock tumbled by 18% after hours following mixed fourth-quarter earnings.
• Daily active user figures missed expectations due to Google algorithm, according to Reddit’s CEO.
• However, analysts confirmed their positive views on the stock.

Reddit stock dropped after mixed fourth-quarter earnings as daily active user growth fell short of projections.

CEO Steve Huffman blamed Google Search algorithm changes for traffic volatility but said recovery is underway.

 Reddit Stock Plunges Despite Strong Results

Reddit (RDDT) stock fell by 15% in after-hours trading after mixed fourth-quarter earnings . Revenue jumped by 71% on an annual basis to $427.7 million, beating estimates of $405.5 million, but EPS came in at $0.36, missing expectations of $0.48.

Daily active users hit 101.7 million, up by 40% year-over-year but below the 103.8 million forecast.

CEO Steve Huffman blamed Google Search algorithm changes for traffic volatility but said Q1 recovery is underway. Reddit is enhancing its AI-powered search to retain users and convert logged-out visitors into active accounts.

Reddit’s first-quarter guidance exceeded expectations , projecting revenue of $360-$370 million (vs. $359 million expected) and adjusted earnings of $80-$90 million (vs. $72 million forecasted)

Since going public, Reddit has beaten revenue forecasts every quarter, boosted by AI partnerships, including a $60 million annual Google deal and a content licensing agreement with OpenAI.

Google Algorithm Hits Reddit Traffic

In a letter to shareholders , CEO Steve Huffman acknowledged recent fluctuations in Reddit’s traffic due to a Google Search algorithm update.

Daily user growth slowed to 39% in the fourth quarter, down from 47% in the previous quarter. U.S. daily active users reached 48 million, a 32% annual increase. However, this was slightly below the 48.2 million reported in Q3.

Reddit’s reliance on Google for traffic remains a key concern for investors. In October, Huffman noted that Google’s algorithms can both boost and hinder the platform’s visibility.

“Our teams have navigated numerous algorithm updates and did an excellent job adapting to these latest changes effectively,” Huffman said.

“This particular swing was interesting, though, because we saw a corresponding increase in the query term ‘Reddit,’ which suggests users are searching with the specific intent of reaching Reddit, and this propensity continues to rise.”

Analysts Confirm Buy Recommendations

Following the earnings report, 19 Wall Street analysts set a 12-month average price target of $190.17 for Reddit, with estimates ranging from $142.00 to $250.00.

This suggests a potential 12.15% decline from its previous price of $216.47.

Analysts also highlighted Reddit Answers, its AI-powered post summarization tool, as a potential driver of ad revenue by capturing search budgets through promoted links.

Morgan Stanley noted that Reddit has multiple growth opportunities for 2025. These include its partnership with Google, which boosts search traffic to the platform.

A larger, more engaged user base could also help Reddit close the gap in ad pricing with competitors like Google and Meta.