During the recent Wall Street Journal Tech Live conference at Montage Laguna Beach, Steve Huffman, Reddit’s co-founder and current CEO, shed some light on the challenges and successes of the past quarter. The gathering, held on October 21, 2024, saw many insights into the company’s performance.
Reddit witnessed a more than 15% drop in its share value this past Wednesday, following the release of its fourth-quarter earnings, which reported user numbers that fell short of expectations. When measured against LSEG estimates, the results were mixed:
The earnings per share came in at 36 cents, surpassing the anticipated 25 cents, while revenue hit $428 million, better than the expected $405 million. Despite these financial triumphs, global daily active users, or DAUqs, increased by 39% over the previous year, bringing the average to 101.7 million. This figure was slightly below Wall Street’s projections of 103.1 million.
A notable aspect of Reddit’s fourth-quarter performance was attributed to changes in Google’s search algorithms, leading to some inconsistency in user growth. In a message to shareholders, Huffman elaborated on this fluctuation, mentioning that search-related traffic has since bounced back at the beginning of the new year. “Such occurrences are not uncommon, as referrals from search engines can vary, especially impacting those users who aren’t logged in,” Huffman explained. “Our team is no stranger to navigating algorithm shifts, and they’ve done an outstanding job adjusting to the latest ones.”
Reddit has largely benefitted from Google’s search enhancements and its own site upgrades, drawing in a significant wave of both new and returning visitors, which the company often tags as logged-out users. Over the past eighteen months, Reddit has been devoted to converting these casual visitors into account holders since they tend to drive more value for the business.
In the realm of metrics, logged-in DAUqs achieved a 27% year-on-year increase, climbing to 46.1 million, while logged-out DAUqs surged by 51% to 55.6 million during the quarter. During the earnings call, Huffman remarked that Google’s algorithm revisions occur about twice annually, acknowledging, “This isn’t the first, nor will it be the last such adjustment.” He noted the latest change primarily affected U.S. logged-out users but pointed out that after an initial drop, user numbers did recover towards the quarter’s end.
Despite missing on user numbers, Reddit otherwise posted an excellent quarter performance, coupled with promising forward-looking statements. The company experienced a remarkable 71% leap in sales, reaching $250 million, marking the fastest quarterly growth since 2022. Looking ahead, Reddit expects its first-quarter sales to hover between $360 million and $370 million, exceeding the analysts’ consensus of $358 million.
Profit figures were equally impressive, with net income surging to $71 million from $18.5 million the previous year. Adjusted earnings also surpassed expectations, reaching $154 million, higher than the anticipated $128 million.
Since going public in March, with its shares initially priced at $34, Reddit has seen its stock price soar more than sixfold, standing at $216.47 as of the latest close. The stock had already appreciated 32% earlier this year until the recent after-hours dip.
Reddit’s results arrive in the wake of similar financial declarations from other online ad tech giants. Notably, Amazon reported a sizeable 18% increase in its online advertising revenue, totaling $17.29 billion in the fourth quarter. Likewise, Pinterest noted an 18% rise to $1.15 billion in sales during the same period.
Alphabet also reported gains, with Google’s ad income increasing by 11% to $72.46 billion, and YouTube’s revenue climbing by 14% to $10.47 billion. Snap showed similar patterns, reporting a 14% year-over-year growth to $1.56 billion.
Wrapping up a flurry of earnings announcements, Meta disclosed a 21% boost in its Q4 revenue, totaling $48.39 billion. Microsoft, though less specific about its earnings, noted a 21% increase in its advertising sales year-over-year.
If you are interested in more financial insights, consider catching Hightower’s Stephanie Link discuss why she’d choose Amazon over Meta.
