Reddit shares fell more than 23% in premarket trading on October 30 despite results that topped analyst expectations on both revenue and profit. Investors looked past the earnings beat and focused on what Google’s Nebraska data center expansion and AI search features may be doing to the platform’s user pipeline and on fourth-quarter guidance that came in below consensus.
Third-Quarter Performance
Reddit posted its strongest profitability metrics to date, with revenue and adjusted earnings both clearing analyst estimates by a meaningful margin.
Third-quarter revenue reached $895 million, up 53% year over year and above the $874.9 million consensus estimate. Adjusted earnings per share came in at $1.40, versus the $1.33 analysts expected, while net income reached $283 million. Adjusted EBITDA rose 70% year over year to $402 million, representing a 45% margin. Advertising revenue grew 54% to $847 million, accounting for nearly all of Reddit‘s business.
Q4 Guidance Falls Short
Reddit’s fourth-quarter revenue forecast missed the Wall Street consensus at the midpoint, shifting investor attention from current results to forward momentum.
Reddit forecast fourth-quarter revenue of $1.00 billion to $1.03 billion, below the roughly $1.05 billion analysts expected at the midpoint. The range implies continued growth but signals a material deceleration from the third quarter’s 53% year-over-year pace.
Google AI Features Reduce Search Referrals
Search-referral traffic declined meaningfully during the quarter, with CEO Steve Huffman citing Google AI Overviews and AI Mode as contributing factors.
Search-referral traffic declined during the third quarter, with the deterioration accelerating late in the period. By October, referrals had fallen by more than 1 million per week on average, according to Reddit’s earnings release. Huffman attributed part of the pressure to Google AI Overviews and AI Mode, features that answer queries directly within search results and can reduce the need to visit Reddit. Europe restricts Google From Handling government and sensitive data, adding further regulatory scrutiny to the company reshaping platform traffic patterns. The impact was most pronounced among logged-out and web users, the groups most dependent on search discovery to reach the platform.
Total daily active uniques grew 12% year over year to 130.3 million, a six-percentage-point deceleration from the prior quarter. U.S. daily active uniques fell 2% year over year to 50.7 million, while international daily active uniques grew 24%. Reddit warned that if the search-referral decline continues at its current pace, total daily active uniques could fall by a low-double-digit percentage in the fourth quarter from the current base of roughly 130 million.
Reddit’s Response: Prioritize Logged-In Users
Reddit plans to test a primarily logged-in experience in selected international markets during the fourth quarter, aiming to reduce its dependence on search-engine referrals.
Reddit’s strategy centers on shifting emphasis toward logged-in and app users. Huffman said those audiences account for more than 80% of the platform’s monetization. The company is also working to encourage direct visits, improve retention, and move more mobile-web users toward its application. Requiring or strongly encouraging logins may improve engagement and advertising value per user, but it also raises the barrier for new or casual visitors who currently discover Reddit through search. Exploring AI-powered websites and tools may offer alternative pathways to re-engage users beyond traditional search referrals.
Analysts See Durability Risk
Jefferies flagged that deteriorating U.S. daily-user trends could keep the stock range-bound until evidence of a recovery emerges.
Jefferies analyst John Colantuoni said Reddit’s strong revenue and EBITDA growth was overshadowed by worsening U.S. daily-user trends and the impact of AI Overviews on referral traffic. Jefferies retained a constructive longer-term view based on Reddit’s monetization potential, but indicated that the user-growth picture would need to stabilize before investor sentiment improves.
Reddit’s fourth-quarter adjusted EBITDA guidance of $480 million to $510 million points to continued profitability despite the weaker user outlook. The company also repurchased roughly 670,000 shares for $100 million during the third quarter. Weekly active uniques reached 515.2 million, up 16% year over year, a figure Reddit may use to reassure advertisers as daily-user trends remain under pressure. The core tension investors are weighing is straightforward: Reddit is monetizing its current audience effectively, but the path to growing that audience has narrowed materially.
