TLDR
- Reddit (RDDT) stock was down about 22% in premarket trading Friday, near $100, after closing Thursday at $129.60.
- Q3 adjusted earnings of $1.40 per share and revenue of $895 million both beat estimates.
- Daily active users of 130.3 million missed the 134 million estimate, and U.S. users fell 2%.
- Q4 revenue guidance has a midpoint of $1.015 billion, below Wall Streetās $1.05 billion estimate.
- Search referrals fell by more than 1 million a week in October, and Reddit warned users could drop by a low double-digit percentage in Q4.
Reddit (RDDT) stock was down about 22% in premarket trading Friday, near $100. It closed Thursday at $129.60, down 4%.
The drop followed third-quarter results that beat on earnings but missed on users and guidance. Good numbers, bad mood.
Adjusted earnings were $1.40 per share, above the $1.33 estimate. Revenue rose 53% to $895 million, ahead of the $875 million analysts expected.
Advertising revenue climbed 54% to $847 million. That topped the $830 million estimate.
Search Traffic Becomes the Story
Daily active users hit 130.3 million, up 12% from a year ago. Analysts had expected 134 million, according to FactSet.
U.S. daily active users fell 2%. International users grew 24%.
CEO Steve Huffman said search referrals fell by more than 1 million a week on average in October. He said the decline picked up speed toward the end of the quarter.
If that pace holds, daily active users could fall by a low double-digit percentage in the fourth quarter. Huffman told analysts that search trends ādo not define our future.ā
Googleās AI Overviews are a big part of the problem. Users often read the AI summary instead of clicking links, and Reddit was cited often in those lists.
Huffman said Reddit will focus on logged-in and app users. They account for more than 80% of its monetization.
The company also plans to test a mostly logged-in experience in select markets outside the U.S. in the fourth quarter. Better retention and more app adoption are also on the to-do list.
Guidance Falls Short
Fourth-quarter revenue guidance is $1.00 billion to $1.03 billion. The midpoint of $1.015 billion sits below Wall Streetās $1.05 billion estimate.
Reddit expects fourth-quarter adjusted EBITDA of $480 million to $510 million. Third-quarter adjusted EBITDA rose 70% to $402 million.
Net income rose 74% to $283 million, a 32% margin. Weekly active uniques grew 16% to 515.2 million.
Some investors wanted word on AI data deals. Alphabet (GOOGL) and OpenAI are estimated to pay $60 million to $70 million a year each for Reddit content, and both deals are up for renewal.
Reddit gave no update on those talks in its report. The stock was already down 41% this year before Fridayās drop.
Reddit also repurchased about $100 million of its stock in the third quarter. That came out to roughly 670,000 shares.
A spokesperson told Barronās on Thursday that the negotiations are still happening. Premarket Friday, the stock was trading near $100.
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