Reddit has long attracted millions of users to its site through Google. Many users are adding the word “Reddit” to their search queries for better answers. But as search traffic dries up amid the shift to AI-powered search, Reddit is rethinking its relationship with the open internet. The company primarily announced the transition to a “login experience” during its third-quarter earnings call on Thursday.
The move is aimed at protecting data from AI scraping, and in return allows the company to enter into favorable licensing deals with model providers. But just as importantly, such changes could help Reddit increase its revenue even as it faces a decline in daily active users in the United States, its largest market.
Overall, Reddit’s global daily active users were flat quarter-over-quarter at 130.3 million in Q3, while U.S. daily active users fell from 53.2 million in Q2 to 50.7 million in Q3, a 2% year-over-year decline.
The company is not alone in experiencing this decline. The shift to an AI-centric web is currently impacting most websites and publishers, leading to fewer click-throughs as AI summaries provide answers without requiring a website visit, making Google’s traditional “10 blue links” less relevant. (Google’s earnings have now revealed that this change is even impacting Google’s bottom line.)
But at Reddit’s scale, the numbers associated with such a decline are huge. The company said search traffic referrals dropped by an average of more than 1 million per week in October. It warned that if this trend continues, the number of daily active users could fall to low double digits by next quarter. (Extrapolating from this, a hypothetical 10%-12% decline would put Reddit’s daily actives at around 115-117 million, down from 130.3 million in Q3. That’s a significant drop.)
At the same time, Reddit has gotten much better at monetizing its audience, despite slowing growth. Revenues rose 53% year over year to $895 million, beating Wall Street expectations of about $875 million. Net income increased 74% to $283 million. Advertising revenue increased 54% to $847 million, and non-advertising revenue, which includes AI data licensing business, increased 35% year over year to $48 million.
Additionally, Reddit’s average revenue per daily active user in the US increased 53% to $13.82, despite a 2% year-over-year decline in US daily user numbers. Globally, average revenue per daily active user increased 36% year over year to $6.87.
Moving to a login experience could drive this number even higher, as logged-in users are typically more valuable to advertisers.
Unlike logged-out users, who often arrive at your site via search, logged-in users provide more signals about their interests and behavior, which can help you target and personalize your ads.
These same signals also help Reddit provide users with a more personalized experience, including personalized feeds, recommendations for new communities to subscribe to, and pushes to vote, comment, participate, and more. (This includes pushing recommendations to a new algorithmic “For You” feed announced yesterday, which combines posts from communities you’re a part of with other recommendations based on your interests.)
Still, a change of this magnitude could be a canary in the coal mine for the open web.
“I don’t know about you, but for someone whose life has been defined by the open internet, this is a big change,” Reddit co-founder and CEO Steve Huffman said in a post on Reddit’s site. “But we came to the conclusion that this was the right decision for our platform and the right decision for our business,” he said.
The company notes that the transition to a login experience won’t happen overnight. The company plans to begin testing in select markets outside the U.S. in the fourth quarter. There is no timeline yet for when this change will be rolled out to all users worldwide. He also acknowledged that accessing the front page after logging out is important.
Reddit also noted that just because you’re logged in doesn’t mean you have to give up your anonymity, and it doesn’t plan to remove the option to browse anonymously through an “Incognito” experience during the rebuild.
“There are still many unanswered questions, especially around where the line should be between login and logout experiences. This is a major evolution for Reddit, and it’s not something we take lightly,” Hoffman wrote. But I believe it’s the right next step for the platform and our future. ”
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