Reddit Shares Sink on Weak Sales Guidance and Login Requirement Test

Reddit said Thursday it plans to require all users to create official accounts to access the social media platform, a major departure for the site known as the front page of the internet.

The company revealed the change as part of its third-quarter earnings. It said the results beat on the top and bottom lines, but it provided weak fourth-quarter sales guidance. The company's shares dropped over 11% after the numbers were released.

Reddit said third-quarter sales grew 53% year-over-year, ending an earlier streak of eight straight quarters in which revenue growth exceeded 60%. The company reported daily active uniques, or DAUq, rose 12% year-over-year to 130.3 million, trailing Wall Street estimates of 133.7 million. U.S.-specific DAUq dropped 2% year-over-year to 50.7 million, below analyst projections of 53.5 million.

The company said fourth-quarter sales will range from $1 billion to $1.03 billion, below Wall Street estimates of $1.05 billion. Its third-quarter average revenue per user, or ARPU, was $6.87, higher than the $6.50 analysts expected. Its other revenue, including data licensing, jumped 35% year-over-year to $48 million.

CEO Steve Huffman told CNBC that shrinking Google search-referral traffic played a major role in the planned efforts to require people to become logged-in users. He said a previous Google search update designed to surface authentic content from internet forums helped Reddit grow its user base, but Google's continued push on AI overviews and related chatting features has negatively impacted referral traffic.

Huffman said the relationship between Google and the rest of the internet is evolving, and for Reddit that means a continued focus on core users who come to the platform directly. He said previous Google algorithm changes would kind of come and go, but the company's AI efforts represent a fundamental shift in how the Google product works.

Reddit said it will begin testing the registration change in the fourth quarter outside the U.S. Huffman did not provide specific timing for a broader rollout, saying implementation through the site would involve complexity. He said the company is still determining what parts of the service logged-out users will be able to see.

The company said it is still in negotiations with Google over its data-licensing agreement and said it will only do a deal that makes sense for Reddit if it chooses to continue the partnership.

Source: CNBC