(Feb 12): Reddit missed market estimates for daily active unique visitors in the fourth quarter on Wednesday, hit by changes in Google's search algorithm that impacted how often the social media platform appeared in the search results, sending its shares down 16% in extended trading.

The San Francisco-based company's stock, which debuted in March 2024, gained nearly five-fold last year.

Reddit experienced some volatility with Google search later in the fourth quarter, triggered by a periodic algorithm change, but traffic from search has recovered so far in the first quarter, chief executive officer Steve Huffman said in a letter to shareholders.

The algorithm changes impacted users that browse the platform without signing into an account, Huffman added.

The company forecast first-quarter revenue above estimates, driven by its AI content licensing deals with Alphabet's Google and Microsoft-backed OpenAI, and a robust digital advertising spend on the platform.

It has benefitted from its conversation placement ads format, where brands can advertise directly into discussion threads within interest-based communities known as subreddits.

"Reddit shares are down in part due to Daily Active Users missing expectations, but it's not the best reason for anyone to lose faith in the company," said Jeremy Goldman, senior director of briefings at eMarketer.

The social media platform has been using AI to enhance its products and boost user engagement. It started testing Reddit Answers, an AI-powered feature that scours posts on the social media platform to answer users' queries.

The company expects first-quarter revenue of US$360 million (RM1.6 billion) to US$370 million, compared with analysts' average estimate of US$358.1 million, according to data compiled by LSEG.

Reddit's daily active unique visitors rose 39% to 101.7 million in the fourth quarter ended Dec 31, missing estimates of 103.3 million.

Revenue rose 71% to US$427.7 million during the fourth quarter, beating the average estimate of US$405.3 million. Its global average revenue per user increased 23% to US$4.21.

The company's profit per share of 36 cents exceeded estimates of 25 cents.

Uploaded by Jason Ng