Reddit Shares Plunge After Google Search Algorithm Shake-Up

Reddit shares dropped 9% after missing fourth-quarter expectations for daily active users, affected by Google's AI-driven search updates. Despite a rise in user count, growth slowed. International revenue surpassed U.S. figures, though stock remains volatile. Partnership with AI firms was beneficial yet limited in impact last quarter.

Shares of Reddit fell sharply by 9% in early Thursday trading, following the company's failure to meet Wall Street's fourth-quarter expectations for daily active unique visitors. The drop was partly attributed to Google's recent changes in its search algorithm, which prioritizes artificial intelligence-generated summaries.

These AI summaries are designed to present information prominently at the top of search engine results, before traditional website links, thus negatively affecting Reddit's traffic, according to Susannah Streeter from Hargreaves Lansdown. Reddit CEO Steve Huffman noted a recovery in search traffic for the first quarter.

Despite a 39% year-on-year increase to 101.7 million daily active users, Reddit's figures fell short of analysts' estimates of 103.3 million. This downturn overshadowed the company's strong revenue forecast for the first quarter and robust fourth-quarter revenue. However, Reddit's stock price has surged manifold since its 2024 debut, with some brokers raising price targets following recent results.

(With inputs from agencies.)