Reddit CEO Steve Huffman attributed a recent dip in user growth to a Google search algorithm change, while the company still outperformed Wall Street's expectations for revenue and earnings.
Reddit CEO Steve Huffman acknowledged that the company encountered some 'volatility' in user growth following a recent adjustment to Google 's search algorithm . In a letter addressed to shareholders, Huffman explained that this volatility primarily affected logged-out users who access the platform without an account. He emphasized that these algorithm updates, which occur twice a year, are not unusual and that search-related traffic has since rebounded in 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 temporary dip in user numbers, Reddit exceeded Wall Street's expectations for both revenue and earnings. The company reported $428 billion in sales and earnings of 36 cents per share, surpassing analyst predictions of $405 billion in revenue and 25 cents per share in earnings. Notably, sales surged by 71% compared to the previous year. Reddit also provided optimistic revenue guidance for the first quarter and witnessed a significant increase in net income, which quadrupled to $71 million, or 36 cents per share. Many analysts on Wall Street maintained their faith in the company's stock, with Morgan Stanley analyst Brian Nowak recommending investors capitalize on the current downturn by purchasing shares. Wells Fargo analyst Ken Gawrelski echoed this sentiment, reiterating his overweight rating but acknowledging that a full stock recovery may hinge on consistent user growth in the United States. 'We like Reddit's growth but see balanced risk reward,' wrote Bank of America's Justin Post. He expressed concerns about Reddit's high valuation, reliance on Google, and the potential for revenue deceleration later this year, leading to a neutral rating
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