Reddit announced plans to require all users to create official accounts and log in to access the platform, marking a major departure for the site known as “the front page of the internet.” The company revealed the change Thursday as part of its third-quarter earnings, where the company posted revenue of $895 million, beating LSEG estimates of $878 million. However, shares dropped over 15% following the release of its numbers.
Search Traffic Decline and AI Scraping Pressures Drive Account Mandate
Steve Huffman told CNBC that shrinking search-referral traffic from Google played a major role in its planned efforts to require people to become “logged-in” users. The company is making the change to improve its user experience, bolster its ads business and prevent bots from scraping its proprietary data. Huffman said that search engine referrals to Reddit decreased by more than one million on average each week during October.
Third-Quarter Financial Performance and Advertising Growth
During the third quarter, Reddit posted a 53% increase in revenue compared to the same period a year earlier, breaking a streak of eight consecutive quarters with growth exceeding 60% that was announced in July alongside its second-quarter financial results. Earnings per share came in at $1.40, beating the expected $1.35. Average revenue per user reached $6.87, outperforming the $6.50 that analysts were expecting. Since going public in March 2024, Reddit’s ads business has nearly tripled. Performance advertising now constitutes over 60% of total ad revenue.
User Metrics and Fourth-Quarter Financial Guidance
The platform’s number of daily active unique users grew by 12% over the previous year, reaching 130.3 million during the third quarter, which fell short of the 133.7 million Wall Street projections. In the U.S., DAUq fell 2% to 50.7 million. For the fourth quarter, Reddit forecasts revenue between $1 billion and $1.03 billion, falling below Wall Street estimates of $1.05 billion. Huffman warned that daily active unique visitors could decline by a low-double-digit percentage in the fourth quarter if search referral trends persist.
Testing Phase and Data Licensing Negotiations
Reddit will begin testing the logged-in experience in select markets outside the U.S. in the fourth quarter. The homepage will still be accessible to logged-out visitors. Individuals who arrive at the platform through shared links or search engines will still maintain the ability to view that specific linked material. In the third quarter, the company’s “other revenue” division—which encompasses its data-licensing operations—saw its revenue rise 35% year-over-year to reach $48 million.
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