Reddit Stock Falls 29% After Warning That Search Traffic Decline Could Cut Q4 Users

Reddit (NYSE: RDDT) fell 29.2% on Friday, Oct. 30, closing at $91.73 against a previous close of $129.60, on volume about 8.2 times normal. The S&P 500 ETF (SPY) fell 1.77% that session. The day followed the company's 8-K filed after the close on Oct. 29, which included its third-quarter results and a letter to shareholders. The filing does not state how investors interpreted those disclosures.

Search referrals fell, and October declines continued

The shareholder letter said search referral traffic was down meaningfully in the third quarter, with the decline accelerating later in the quarter. It said those declines have continued into October, with search traffic dropping by more than 1 million referrals on average per week. The letter stated that if that rate of decline continues, total daily active uniques could fall in the fourth quarter by a low-double-digit percentage from the current base of 130 million.

Revenue grew 53% in the quarter

Reddit reported revenue of $895 million, up 53% from a year earlier, with advertising revenue of $847 million. Net income was $283 million, and diluted earnings per share were $1.40. The company said it had $3.03 billion in cash, cash equivalents and marketable securities as of Sept. 30. For the fourth quarter, it estimated revenue of $1,000 million to $1,030 million and adjusted EBITDA of $480 million to $510 million.

A logged-in-only test is planned

The letter said Reddit will begin testing a logged-in-only experience in select markets outside the U.S. in the fourth quarter. The company said the change would give it more signals for ad targeting and help it protect its data. The letter did not give a timeline for a global rollout.

The company's full results are described in an 8-K, and its 10-Q was filed later that evening.