Reddit Inc. reported slower user growth in the fourth quarter, attributing the decline to recent changes in Google’s search algorithm that have impacted traffic to the platform. The news sent shares tumbling by 8.9 percent in premarket trading on Thursday, raising concerns over Reddit’s reliance on the search giant to direct users to its site.
According to Chief Executive Officer Steve Huffman, Google’s algorithm changes had a notable effect, particularly on users in the United States who were not logged into Reddit. However, Huffman reassured investors that the company had already observed improvements in the first quarter of this year.
Over the years, Google has driven up to 50 per cent of Reddit’s daily traffic, making it particularly vulnerable to shifts in search ranking mechanisms. Analysts believe the slowdown in user growth is exacerbated by the rise of large language model (LLM) applications and AI-powered search tools, which summarise content on their own platforms rather than redirecting users to Reddit. Bloomberg Intelligence analyst Mandeep Singh noted that this trend could push Reddit to integrate more AI-driven features in a bid to reduce its dependence on search engines.
The company reported an average of 101.7 million daily active unique visitors during the period, falling short of analysts’ expectations of 103.8 million. The disappointing figures come despite Reddit’s strong market performance since its initial public offering in March 2024, during which its stock had surged sixfold. Even so, Reddit remains one of the most successful IPOs in recent years, significantly outperforming broader market trends.
Reddit, headquartered in San Francisco, has been heavily investing in advertising technology to compete with digital advertising giants such as Google and Meta, the parent company of Facebook and Instagram. Over the past year, the company has introduced various new advertising formats, including shopping and video ads, while also securing partnerships with major sports leagues to attract advertisers. It has focused on expanding its reach among small- and medium-sized businesses, as well as international advertisers.
Beyond advertising, Reddit has been diversifying its revenue streams through data-licensing agreements with artificial intelligence firms. The company secured contracts worth $203 million last year with partners including Google and OpenAI, and more deals are expected as AI companies seek vast data sets to train their models. Huffman confirmed that Reddit remains in discussions with major industry players over further agreements.
To strengthen its long-term position, Reddit is investing in AI-powered search tools and has recently launched a chatbot to help users navigate its forums more effectively. Huffman also commented on the growing influence of open-source AI models, predicting that they will continue to rival commercial alternatives in the market.
(With inputs from Bloomberg)
