Reddit beat third-quarter revenue and earnings estimates, but weaker search referrals weighed on user growth: daily active unique users fell short of analysts’ forecasts. The company plans to test requiring users to log in, though the effects on growth and access for logged-out visitors remain unclear. Reddit shares fell in after-hours trading on Thursday following the results.
Revenue rises 53% as ad sales reach $847 million
The San Francisco-based social media company reported third-quarter earnings of $1.40 per share and revenue of $895 million for the period ended in September. Analysts surveyed by FactSet had expected earnings of $1.33 per share and revenue of $875 million. Earnings per share rose 75% year over year, while revenue increased 53%.
Advertising remained Reddit’s main source of revenue. Ad sales grew 54% from a year earlier to $847 million. While the financial results topped expectations, user metrics did not, putting changes in search traffic on investors’ radar as they assess the company’s growth.
Daily users miss forecasts as search referrals decline
Reddit’s daily active unique users increased 12% year over year to 130.3 million, below analysts’ estimate of 133.7 million. CEO Steve Huffman said in a letter to investors that search referrals declined significantly during the third quarter, with the drop accelerating toward the end of the period.
Huffman said the impact was greatest among logged-out users and web traffic. Some effects also reached logged-in users and app traffic, since search referrals feed into those channels as well. The company did not specify what caused the decline or quantify its potential effect on future user metrics.
Reddit to test login requirement
In response to weaker search traffic and slower user growth, Reddit said it would begin testing a requirement for users to log in. The company has not disclosed the test’s scope, timing or target audience, leaving its effect on traffic, engagement and advertising uncertain.
The quarter delivered a mixed picture for the market: revenue and earnings exceeded expectations, and advertising sales continued to grow, but daily users fell short of forecasts as search referrals weakened. Investors will be watching whether the decline in search traffic continues and how the login test affects access for logged-out visitors and overall activity.