Reddit revealed third-quarter earnings alongside plans to require official accounts for all visitors as Google search referral traffic declines. The platform reported beating top and bottom line estimates, but its shares dropped over 15 percent following weak fourth-quarter sales guidance.
Key Facts
- Reddit shares dropped over 15 percent following the third-quarter earnings report.
- Daily active uniques reached 130.3 million in the third quarter, rising 12 percent year-over-year.
- Fourth-quarter sales are projected to range between $1 billion and $1.03 billion.
- October search traffic dropped by more than 1 million referrals on average per week.
During a recent earnings call, Reddit CEO Steve Huffman explained that search referral traffic went down meaningfully in the third quarter due to a shift toward Google AI modes and AI overviews, CNBC reported. Huffman noted that Google AI-powered search modes do not help with traffic to the platform, echoing struggles faced by other websites and publishers, The Verge reported. As part of these search challenges, October search traffic dropped by more than 1 million referrals on average per week. Huffman also mentioned that Reddit believes machine-translated content in other languages is being ranked lower in search results outside the United States.
To combat the decline in search referrals, Reddit plans to require all users to create official accounts to access the social media platform. Huffman stated that the platform is the last major site to provide unfettered logged-out access. The company will begin testing the registration change outside the United States in the fourth quarter. Huffman explained that logged-in users are more valuable to advertisers and allow for better monetization of the platform. Additional efforts to make the site a daily destination include introducing a For You feed and experimenting with AI tools that turn posts into short videos.
Financial Performance and Data Licensing
Third-quarter sales grew 53 percent year-over-year, ending a streak of eight consecutive quarters of revenue growth exceeding 60 percent. Daily active uniques rose 12 percent year-over-year to 130.3 million, falling short of Wall Street estimates of 133.7 million, while U.S.-specific daily active uniques dropped 2 percent to 50.7 million. Average revenue per user came in at $6.87, topping analyst expectations of $6.50. The other revenue segment, which includes data licensing, jumped 35 percent year-over-year to $48 million. Reddit maintains major data-licensing partnerships with OpenAI and Google, with Huffman noting that negotiations regarding the Google partnership remain ongoing.
Background
Reddit has historically relied on open web access and search engine optimization to grow its user base, benefiting significantly from previous Google algorithm updates designed to surface authentic forum content. However, the rapid rollout of AI search features has altered how discovery works across the internet, pushing traditional organic links down the page. Huffman compared the current strategic discussions to the period when he returned to the company in 2015, emphasizing that the core mission remains centered on building genuine communities and conversations.
Why It Matters
The strategic shift away from open guest access signals a turning point for web platforms that have traditionally relied on open search engines for growth. As AI-driven search experiences alter traditional traffic flows, companies may increasingly turn toward walled gardens and mandatory accounts to protect data and secure ad revenue. How users adapt to these registration walls could influence broader publishing and social media strategies across the technology sector.
Illustration: AI-generated image, not a photograph of the event.