Reddit flags volatile search referrals as US user growth slows
July 30 : Reddit said on Thursday that choppy search-engine traffic affected U.S. user growth in the second quarter, overshadowing an upbeat revenue forecast and sending its shares down about 12 per cent in extended trading.
The social media company operates in a highly competitive market. Bigger rival Meta through its Threads communities hub and new Forum app for Facebook Groups users appears to be directly targeting Reddit's core community model.
"Search referrals were choppy in the quarter, and traffic was more volatile later in the quarter, but the bigger picture is unchanged: the commercial business is strong," Co-founder and CEO Steve Huffman said in a letter to shareholders.
AI overviews have yet to make a similar level of positive impact as traditional "10 blue links", Huffman said on the company's post-earnings call.
Reddit's user growth is shifting toward international markets that generate less revenue than the U.S. The company reported average revenue per user of $11.85 in the U.S., compared with $2.26 internationally.
Daily active unique visitors in the U.S. rose 6 per cent in the second quarter, down from 7 per cent in the prior quarter, while international DAUq jumped 28 per cent.
Still, product improvements are helping convert lower-engagement visitors from search engines into loyal app users, she said.
Reddit also forecast slower revenue growth in the third quarter. However, the forecast range of $860 million to $870 million was above LSEG-compiled analysts' average estimate of $829.1 million.
Reddit's second-quarter revenue rose 61 per cent to $805 million, beating estimates of $730.4 million.
The company expects third-quarter adjusted earnings before interest, taxes, depreciation and amortization of $385 million to $395 million, above estimates of $369 million.
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