Reddit plans to require all users to create official accounts to access the social media platform, marking a major change for the site known as “the front page of the Internet.”
The company revealed the change Thursday as part of its third-quarter results, in which it reported top and bottom results but provided weak sales guidance for the fourth quarter. The company’s shares fell more than 15% after releasing its numbers.
Here are the company’s results compared to LSEG estimates:
- Earnings per share: $1.40 versus $1.35 expected
- Income: $895 million versus $878 million expected
Reddit CEO Steve Huffman told CNBC in an interview that the company’s decline in search SEO traffic Google played a major role in its planned efforts to require people to become “connected” users.
A previous Google Search update designed to surface “authentic” content on Internet forums helped Reddit grow its user base in recent years, but the search giant’s continued push for AI previews and associated chat features has had a negative impact on referral traffic.
“I think fundamentally the relationship between Google and the rest of the Internet is evolving, and so for us that means a continued focus on our core users who come directly to Reddit,” Huffman said.
Previous changes to Google’s algorithm “came and went,” Huffman said, but the company’s AI efforts represent “a fundamental shift in how Google’s product works, from being a traffic engine to what’s happening now.”
Huffman did not provide a specific timeline on when Reddit plans to change the platform registration, saying only that implementing it through the site would involve a lot of complexity.. The company will begin testing in the fourth quarter outside the United States.
He said Reddit was still determining which parts of the service disconnected users will be able to see and would refine the details as part of its upcoming tests.
Reddit said daily unique assets, or DAUq, rose 12% year over year to 130.3 million in the third quarter, behind Wall Street estimates of 133.7 million. U.S.-specific DAUq fell 2% year-over-year to 50.7 million, which was lower than analysts’ forecasts of 53.5 million.
Huffman said that “search SEO traffic declined significantly during this quarter” and that the trend will continue into the fourth quarter.
He said Reddit was continuing its efforts to make its platform “a daily habit” for users. “So that’s where our goal is: to increase the number of app users and connected users,” Huffman said.
Reddit, which gets most of its overall sales from online advertising, is able to monetize logged in users better than logged out users because these registered users are more active and more valuable to advertisers wanting to serve more targeted ads.
“The vast majority of our revenue comes from users of our apps and connected users are direct traffic, and both of those are up Q. over Q. and so that’s where our focus is,” Huffman said.
The company’s third-quarter sales rose 53% year-over-year, marking the end of eight consecutive quarters of revenue growth eclipsing the 60% reported in July as part of its second-quarter results.
Reddit said fourth-quarter sales would be between $1 billion and $1.03 billion, which was lower than Wall Street’s estimates of $1.05 billion.
“It’s still a solid guide,” Huffman said of his revenue projections. “We continue to grow at an industry-leading rate, despite challenges with search benchmarks. »
Reddit’s average revenue per user, or ARPU, in the third quarter was $6.87, which was higher than the $6.50 analysts expected.
The company’s “other revenue” segment, which includes its data licensing business, jumped 35% year over year to $48 million in the third quarter. Reddit’s two largest data licensing partners are OpenAI and Google.
Huffman said Reddit remained “in negotiations” with Google over its data licensing deal, and said it would “only make a deal that makes sense for Reddit” if it chooses to continue the partnership.
“I think there are a lot of strategic considerations to take into account,” Huffman said.
Huffman called the required recording plan a “big change” for himself, considering he “grew up on the open Internet.”
“Reddit is the last platform to provide virtually unlimited offline access, and that’s largely because of me holding that line,” said Huffman, Reddit co-founder. “I think users will probably have the same understanding as I do, which is that this is a sign of the times. It’s an evolution of how these platforms work.”
Huffman later expanded on the importance of AI’s impact on Reddit’s user growth during an earnings call with analysts, and explained that the company plans to continue investing in marketing efforts designed to offset declining search referrals.
“This is an important time for Reddit, and this time reminds me of my return to the company about 11 years ago,” Huffman told analysts, referring to when he joined Reddit in 2015 after then-director Ellen Pao resigned. “So we had a lot of conversations about what Reddit is and what Reddit is for, and what our place is in this ecosystem. And we’ve been having those conversations on Reddit recently.”
“Reddit’s mission is to create community and belonging for everyone in the world, and while there is overlap between Reddit and other players in the ecosystem, whether it’s social media or AI search, at its core, Reddit is about community and conversations,” Huffman said.
WATCH: Market rotations are expected to continue.
Gn bussni
