Reddit shares plummeted 29.22% on Friday, marking the company's worst trading day since going public in 2024, following the release of disappointing third-quarter earnings and weak forward guidance [1]. The social media platform projected fourth-quarter sales between $1 billion and $1.03 billion, falling short of analyst estimates of $1.05 billion, though Q3 sales growth of 53% year-over-year beat Wall Street expectations on both earnings and revenue [1]. This represents a significant decline from the company's previous worst day on July 31, when the stock dropped 20.99% [1].
The earnings report highlighted a critical challenge facing Reddit: declining search referral traffic due to Google's shift toward AI Overviews in search results [1]. CEO Steve Huffman stated in a CNBC interview that search-referral traffic from Google went "down meaningfully in this quarter" due to AI [1]. In response to these headwinds, Reddit announced it will test requiring users to log in to access content—a dramatic departure from the platform's historical open-access model [1]. Huffman explained that the login requirement is intended to boost the number of logged-in users who are more active on the platform, which supports the company's advertising business, noting that "Reddit is the last platform to provide basically unfettered logged-out access" [1].
Analyst reactions were decidedly negative following the results. Citizens downgraded the stock, noting that "search changes highlight the problem with selling content to Google" and expressing concern that as referral problems worsen, "uncertainty around user growth amid the login requirement switch puts more pressure on user monetization" [1]. The combination of weakening search referral traffic and uncertainty surrounding the platform's transition to mandatory login requirements has raised significant investor concerns about future user growth and monetization prospects [1].
CONCLUSION
Reddit's 29% stock collapse reflects investor alarm over deteriorating search traffic from Google's AI integration and execution risks around the company's pivot to mandatory user logins. The weak Q4 guidance and analyst downgrades signal that the market views these structural challenges as material threats to Reddit's growth trajectory and advertising monetization model.