Steve Huffman, co-founder and CEO of Reddit, speaks at the WSJ Tech Live conference hosted by the Wall Street Journal at Montage Laguna Beach in Laguna Beach, California on October 21, 2024.
Frederick J. Brown | AFP | Getty Images
reddit The plan is to require all users to create an official account to access the social media platform, a major shift for the site known as the “front page of the internet.”
The company disclosed the changes Thursday as part of its third-quarter financial results, saying sales and bottom line growth were up, but the company’s fourth-quarter sales outlook was weak. The company’s shares fell more than 11% after the numbers were released.
Here’s how LSEG’s estimates compare to the company’s results:
Earnings per share: $1.40 vs. $1.35 expected Earnings: $895 million vs. $878 million expected
Reddit CEO Steve Huffman said in an interview with CNBC that the company’s search referral traffic is declining. google It played a key role in the planned effort to require users to become “logged in” users.
Previous Google Search updates designed to surface “authentic” content from internet forums have helped Reddit grow its user base over the past few years, but have had a negative impact on referral traffic as the search giant continues to push AI overviews and related chat features.
“Fundamentally, I think Google’s relationship with the rest of the internet is evolving. So for us, this means continuing to focus on our core users who go directly to Reddit,” Huffman said.
Huffman said that while Google’s algorithm changes so far have been “a bit of a back-and-forth,” the company’s AI efforts represent “a fundamental shift in how Google’s products work, from who directs traffic to what’s happening now.”
Huffman did not provide a specific timeline for when Reddit plans to change its platform’s registration, only that implementing it through the site would be very complicated. The company plans to begin testing outside the U.S. in the fourth quarter
He said Reddit is still figuring out what parts of the service will be visible to logged-out users and will work out the details as part of future testing.
Reddit said daily active uniques (DAUq) in the third quarter rose 12% year over year to 130.3 million, which was lower than Wall Street’s estimate of 133.7 million. U.S.-specific DAUq fell 2% year over year to 50.7 million, lower than analysts’ expectations of 53.5 million.
“Search referral traffic is down significantly this quarter,” Huffman said, adding that he expects this trend to continue in the fourth quarter.
He said Reddit continues to work on making its platform a “daily habit” for users. “So our focus is increasing app users and logged-in users,” Huffman said.
Reddit, which derives the majority of its overall revenue from online advertising, makes more money from logged-in users than from logged-out users. This is because registered users are more active and valuable to advertisers who want to serve more targeted ads.
“The majority of our revenue comes from app users, and logged-in users are our direct traffic, and both are up quarter over quarter, so that’s where we’re focused,” Huffman said.
The company’s third-quarter sales rose 53% from a year ago, ending eight consecutive quarters of sales growth of more than 60%, which it announced as part of its second-quarter earnings in July.
According to Reddit, fourth-quarter sales were in the range of $1 billion to $1.03 billion, lower than Wall Street expectations of $1.05 billion.
Huffman said the earnings outlook “remains a strong guide.” “Despite headwinds from search referrals, we are still growing at an industry-leading rate.”
Reddit’s average revenue per user (ARPU) for the quarter was $6.87, beating analysts’ expectations of $6.50.
The company’s other revenue segment, which includes its data licensing business, rose 35% year over year to $48 million in the third quarter. Reddit’s two largest data licensing partners are OpenAI and Google.
Huffman said that Reddit is still “in negotiations” with Google over a data licensing agreement, and that if it chooses to continue the partnership, “we will only do deals that make sense for Reddit.”
“I think there are a lot of strategic considerations involved in that,” Huffman said.
Huffman said the mandatory registration plan was a “big change” for him considering he “grew up on the open internet.”
“Reddit is the last platform that basically offers free logout access, and that’s largely because of me, and I’ve continued to toe that line,” Huffman said. “I think users will probably experience the same understanding that I did, which is that this is a sign of the times. This is an evolution of how these platforms work.”
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