Reddit stock slides as investors weigh Google Search traffic, user growth concerns

Reddit (RDDT) stock sank over 4% Friday despite a first quarter earnings beat the prior day, as investors worried about the company’s daily active user growth and changes to Google’s (GOOG, GOOGL) Search algorithm.

Reddit’s revenue of $392 million was above the $369 million expected by analysts on Wall Street for the three months ended March 31, according to Bloomberg data, marking a 61% increase from the prior year driven by strong advertising sales. The company’s adjusted earnings per share of $0.66 was above the $0.41 expected, while its 108 million daily active users were ahead of analysts’ projection of 107 million.

The stock soared as much as 19% immediately following the results on Thursday afternoon.

Reddit also provided an optimistic outlook for the second quarter, forecasting revenue of $392 million, which was more than the $369 million estimated by analysts. The social media outlet projects second quarter adjusted EBITDA — earnings before interest, taxes, depreciation, and amortization, which is a measure of profitability — to hit between $110 million and $130 million, above the $103 million expected.

Read more about Reddit’s stock moves and today’s market action.

Shares of Reddit pared after-hours gains, however, after executives said changes to Google Search’s algorithm could create volatility in its traffic. Google accounts for 40% to 50% of Reddit’s traffic, according to JPMorgan analyst Doug Anmuth, who holds a Neutral rating on the stock.

“We do expect some bumps along the way from Google because we’ve already seen a few this year,” CEO Steve Huffman said. “This is expected in any year, but given that the search ecosystem is under heavy construction, the near term could be more bumpy than usual.”

Earlier this year, Reddit reported fourth quarter earnings that missed Wall Street’s expectations due to a change in Google’s Search algorithm, with daily active users and earnings missing analysts’ projections. The news sent the stock down more than 20% over the following week in February after rallying in the latter half of 2024.

Reddit stock is down more than 27% year to date, more than the S&P 500’s (^GSPC) 4.7% loss. The company, in which OpenAI’s Sam Altman is a major investor, went public last March in one of 2024’s hottest IPOs and recorded its first profit shortly after.

Following Reddit’s first quarter results, analysts also expressed concerns over the company’s slowing daily active user growth. Daily active users on Reddit rose 30% from the prior year during the first quarter and, while still impressive, marked its third consecutive slowdown in growth.

“While a surprising deceleration in April DAUq [daily active user quarterly] growth serves to increase uncertainty around the sustainability of growth, we were encouraged that RDDT delivered impressive upside to results/guidance despite a dynamic macro environment,” Reddit analyst John Colantuoni wrote, reiterating his Buy rating on the stock and $170 price target.

JPMorgan’s Anmuth raised his price target on Reddit shares to $145 from $110, citing its “strong” results and guidance while noting that “RDDT’s ads business is not showing signs of macro driven slowdown.”