Reddit Shares Drop After User Growth Disappoints

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Reddit Shares Drop After User Growth Disappoints
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Reddit's stock price experienced a significant decline following the release of fourth-quarter earnings that revealed user growth fell short of Wall Street projections. Although the company reported strong sales and positive guidance, the missed user number target caused investor concern.

Reddit 's shares plummeted over 15% on Wednesday following the release of its fourth-quarter earnings report, which revealed user numbers fell short of market expectations. While global daily active uniques (DAUq) demonstrated a 39% year-over-year surge, averaging 101.7 million for the quarter, this figure lagged behind Wall Street's projections of 103.1 million.

Reddit CEO Steve Huffman attributed some of the user growth volatility in the fourth quarter to a Google search algorithm change, but assured that search-related traffic has since rebounded in the first quarter.In a letter to shareholders, Huffman acknowledged the impact of the Google algorithm update, stating, 'What happened wasn't unusual — referrals from search fluctuate from time to time, and they primarily affect logged-out users.' He emphasized that Reddit's teams effectively navigated numerous algorithm updates and successfully adapted to these latest changes. The company has been focusing on internal site improvements and attracting a significant number of new and returning users, referred to as logged-out users, over the past year and a half. Reddit's strategy aims to convert these logged-out users into logged-in users, a more profitable segment for its business.Despite missing user growth targets, Reddit delivered a robust quarter overall and provided upbeat guidance. Sales soared 71% compared to the previous year, reaching $250 million. The company anticipates first-quarter sales between $360 million and $370 million, exceeding the average analyst estimate of $358 million. Net income nearly quadrupled to $71 million, or 36 cents per share, from $18.5 million, or breakeven on a per-share basis, a year earlier. Reddit reported adjusted earnings of $154 million for the fourth quarter, surpassing analysts' expectations of $128 million

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