(Oct 31): Reddit Inc had its biggest share drop since its 2024 initial public offering (IPO), after saying it is planning to limit access to its online forums.
The forum company is making the move in a bid to get users to register for accounts and deepen engagement, but investors were concerned that the move will instead weigh on traffic while the company is already dealing with a drop in active US users.
The firm’s revenue outlook of US$1 billion (RM4.06 billion) to US$1.03 billion also fell below analysts’ estimates, as did total daily active users in the US, which sank 2% from a year earlier, the company said in a statement on Thursday.
Reddit’s shares fell a record 26% to US$95 when trading opened in New York on Friday.
As the company posted third-quarter sales that beat analyst expectations, chief executive officer Steve Huffman announced that Reddit will eventually limit how much of the platform people can access without an account. The company plans to start testing different approaches in markets outside of the US throughout the fourth quarter, and hasn’t decided yet which parts of its site will remain available to logged-out visitors.
The strategy marks a big shift for the company, which has allowed users to explore its forums without an account for two decades. Reddit executives are willing to sacrifice some of the platform’s reach to engage a smaller but more engaged audience with insights that will be valuable to advertisers.
“Every other platform has done this,” Huffman said on a call with analysts on Thursday. “There’s a lot of opportunity here,” he said, adding that he thinks that’s why peer companies have made similar moves.
Shares of Reddit were down 44% for the year through the market close on Thursday. Even as the ads business grows, investors are hyper-focused on how Reddit will attract and retain users in the age of artificial intelligence.
“Reddit’s pivot towards a more logged-in experience stands to become a headwind to daily active user growth, currently in the low-double-digit percentage range,” Bloomberg Intelligence analysts Mandeep Singh and William Tong said in a note.
In an interview, chief operating officer Jen Wong acknowledged the potential for the move to limit Reddit’s reach in the short term but said it would eventually lead to more growth. “I think that’s a trade that makes sense for the long term.”
Huffman said more than 80% of Reddit’s revenue comes from logged-in users.
Since going public in early 2024, the San Francisco-based company has grown its digital advertising business rapidly. Reddit reported third-quarter sales of US$895 million, beating the average analyst estimate compiled by Bloomberg, largely driven by the continued growth of its advertising business.
Worldwide daily active users increased 12% year-over-year to 130.3 million, below the average analyst estimate of 133.5 million.
To date, many users have stumbled upon Reddit through Alphabet Inc’s Google, making the company vulnerable to algorithmic changes and, now, AI-generated responses. Investors have anxiously awaited details to emerge out of the platform’s content-licensing talks with Google and other AI model providers as Reddit seeks to monetise its unique data and protect it from unauthorised scraping.
The strategy shift could help give Reddit more control of its user base by encouraging people to visit the platform directly rather than through search engines or AI models. But it could also threaten growth. In the third quarter, Reddit reported that the number of logged-out users globally grew 17% year-over-year, while logged-in users worldwide increased by just 7%.
Wong said that users with accounts have roughly 10 times the engagement of those who do not log in.
She also cautioned against viewing the strategy as a response to Reddit’s ongoing negotiations with AI companies. Those talks, she said, remain “complicated.”
“There’s a wide range of outcomes, including, if it’s strategic, to not renew a partnership,” she said.
Uploaded by Felyx Teoh