Reddit Stock Plunges 25 Percent Following Traffic Warnings
Despite beating third-quarter revenue and earnings expectations, Reddit shares tumbled sharply after management issued a warning regarding declining search referrals.
Reddit shares experienced a steep decline of 25.27 percent during Friday's trading session, closing at $96.85. The social media company has recently faced significant downward pressure, with its stock dropping 35.55 percent over the past week and 57.87 percent year to date.
The sharp selloff came despite a strong third-quarter financial report that outperformed Wall Street estimates. Reddit posted a GAAP earnings per share of $1.40, topping the consensus expectation of $1.32. Total revenue reached $894.96 million, marking a 53 percent increase compared to the same period last year, while advertising revenue climbed 54 percent to $847 million.
However, investor optimism was quickly overshadowed by warnings regarding a sharp drop in user traffic. Company management revealed that search referrals declined by an average of more than 1 million visits per week in October. Furthermore, executives cautioned that total daily active unique users could fall by a low double-digit percentage in the fourth quarter from a base of 130.3 million.
Chief Executive Steve Huffman placed much of the responsibility for the traffic shift on artificial intelligence features, stating that AI modes fail to generate meaningful traffic for publishers. "The reality is the AI mode does not drive traffic, not for us and not to anybody as far as I know," Huffman remarked.
The downturn in user metrics has also raised questions for index fund investors, as Reddit was recently added to the S&P 500. Because Reddit maintains a relatively small market capitalization, popular broad-market index funds such as VOO and IVV experienced minimal impact from the selloff. Funds that exclude the platform entirely, such as QQQ, were unaffected.
Conversely, specialized funds with a higher concentration in the platform felt the shock more acutely. A social media fund holding Reddit at roughly 8 percent of its net assets dropped nearly 3 percent on Friday alone. Meanwhile, company leadership issued fourth-quarter revenue guidance between $1.00 billion and $1.03 billion, which failed to alleviate immediate investor concerns.
In broader financial markets, related products tracking major US indices also faced downward momentum. The tokenized SPDR S&P 500 ETF saw fluctuations alongside broader market weakness, reflecting ongoing volatility across multiple investment sectors.