Reddit CEO Steve Huffman addressed the recent dip in user growth attributed to a Google search algorithm change. Despite this, Reddit exceeded Wall Street's financial expectations, demonstrating strong revenue growth and profitability.
Reddit CEO Steve Huffman acknowledged that the company experienced some volatility in user growth due to a recent Google search algorithm update. In a letter to shareholders, Huffman explained that this type of algorithm tweak occurs twice a year and primarily affects logged-out users who visit Reddit without an account. He emphasized that search-related traffic has since recovered into the first quarter.
'What happened wasn't unusual — referrals from search fluctuate from time to time, and they primarily affect logged-out users,' Huffman wrote. 'Our teams have navigated numerous algorithm updates and did an excellent job adapting to these latest changes effectively.' Despite this dip in user growth, Reddit exceeded Wall Street's earnings and revenue expectations for the quarter. The company reported earnings of 36 cents per share on $428 million in sales, surpassing analysts' forecasts of 25 cents per share and $405 million in revenue, respectively. Sales also saw a significant increase, growing 71% year-over-year. Reddit offered optimistic revenue guidance for the first quarter and reported a substantial increase in net income, which roughly quadrupled to $71 million, or 36 cents per share. While many Wall Street analysts remained positive about the company's stock performance despite the Google-related challenges, some expressed caution. Morgan Stanley analyst Brian Nowak recommended buying the dip, while Wells Fargo analyst Ken Gawrelski maintained an overweight rating but noted that sustained U.S. user growth would be crucial for a full stock recovery. Bank of America's Justin Post, however, adopted a neutral stance, citing Reddit's high valuation, dependence on Google, and the potential for revenue deceleration later this year
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