Performance of the Stock and the Reason for the Decline
According to Dow Jones Market Data, Reddit’s stock sank 8.8% as of 9:34 a.m. Eastern time, one of the biggest drops since March 28, 2024, when it fell 14.6%. The selloff occurred after the business blamed “volatility” in Google search traffic, which was brought on by an algorithmic update, for its lower-than-expected user growth.
Josh Beck, an analyst at Raymond James, thinks this is a buying opportunity despite the investors’ unfavorable response. He pointed out that the lower-than-expected number of daily active unique users in the United States was probably caused by changes to Google’s algorithm. Furthermore, restrictions on late-quarter ad spending prevented Reddit’s revenue growth from surpassing consensus projections by 5%, which was less than Raymond James’s forecast of 9.5%.
Recuperation and Global Development
Beck noted encouraging progress in the recovery of daily active unique users, despite the fourth-quarter report not meeting expectations. He referenced Reddit’s management opinion, which indicated that the following causes were probably responsible for the recovery in user growth:
- Google’s increased crawling of Reddit content, leading to more visibility in search results
- Uncollapsed comments appearing in search, improving engagement
- Spam-reduction algorithm updates, which may have enhanced the platform’s quality
Beck wrote in his note, “We walk away encouraged by international upside, even though the report did not clear our anticipated bar.”
In the fourth quarter, Reddit’s global daily active unique user base increased by 46% to 53.7 million. This exceeded the 32% increase in the United States, where there were 48 million daily active unique users.
Anyone who has a unique identifier and accesses a Reddit website or uses the Reddit app at least once in a 24-hour period is considered a daily active unique user, according to Reddit.
Progress in Advertising and Reddit Responses
Beck also emphasized Reddit’s advertising innovations and the enthusiastic reception given to Reddit Answers, a feature designed to improve searchability on the site. He thinks these components could increase monetization and engagement even more. Reddit’s stock was still rated as a strong buy by Raymond James.
Reddit extended the Reddit Answers beta test in December 2024. Reddit Answers uses artificial intelligence to enhance search capabilities and make it easier for users to identify pertinent material.
CEO Steve Huffman stated during a conference call about Reddit’s performance that although Reddit Answers is still in its infancy, it has already shown value for a range of subjects.
According to Huffman, “people have used it for everything from local updates on the wildfires in Los Angeles to opinions on the best coffee makers.” “Reddit is excellent at offering perceptive answers to arbitrary queries that are challenging to find elsewhere.”
Although Reddit Answers is only accessible in English at the moment, Huffman seemed upbeat about its prospects. He continued, “We’re thrilled about the early promise of this product and how people are using it.”
Reddit’s shares have increased 291.4% since its initial public offering (IPO) in March 2024, despite the current stock decline. Strong investor optimism in the company’s long-term development potential is reflected in this notable rise, especially in areas like advertising, AI-driven search features, and international expansion.
