Reddit’s first public year shows growth, but Wall Street’s still not happy

User numbers fall short, triggering investor sell-off

Reddit's first year as a public company delivered solid results by most earnings metrics, but try telling that to Wall Street: Falling short on one key growth target sent shares tumbling despite an otherwise upbeat year-end report.

Reddit posted its fourth quarter and 2024 full year results yesterday, reporting a net income of $71 million for Q4, up from $18.5 million the previous year. Earnings per share hit $0.36, surpassing analyst estimates, along with quarterly revenue of $428 million, up 71 percent.

Annual revenue, the vast majority of which is from advertising, reached $1.3 billion, up 62 percent. Content licensing with Google and OpenAI, for AI training, made up about 10 percent of the total.

Global daily active unique users (DAU) increased by 39% over the year to 101.7 million, however, falling short of Wall Street's expectation of 103.3 million. This shortfall led to a 15 percent decline in Reddit's share price during after-hours trading following the earnings call. Although the stock has rebounded slightly today, it remains down by about 8.7 percent, as of writing.

Reddit CEO Steve Huffman tried to soothe worried investors about the missed user growth numbers on the earnings call, placing blame for the issue on a recent Google search algorithm update.

"We did experience some volatility from Google Search triggered by a periodic algorithm change but traffic from search has recovered so far in Q1 and we've regained momentum," Huffman said. "What happened wasn't unusual, referrals from search fluctuate from time to time and they primarily affect logged-out users. Our teams have navigated many algorithm updates over the years and did an excellent job adapting to these latest changes effectively."

Analysts pressed the CEO for specifics on the recent Google algorithm change that impacted Reddit's traffic. Huffman declined to provide details, stating he had his "suspicions," but emphasized that such fluctuations are common and did not affect revenue.

"We see volatility from Google all the time as does everybody," Huffman said. 

The decline primarily affected logged-out users, who often access Reddit through Google search results, he noted, adding that the biz has been successful in converting these users into account holders.

"We used to lose 80 percent of our sign-ups on the choose a username stuff. It was a meat grinder. It's much, much smoother now," Huffman noted. "You can log in and register with an e-mail, with a phone number, with Google or Apple, so really, really fast log-in and then much improved onboarding from there."

Massive year end losses? Reddit can explain

Of course, while Q4 proved to be a positive, Reddit's full-year finances appear a bit less optimistic at first glance. The social media platform reported a net loss of $484.3 million for the full year, up from a net loss of $90.8 million in 2023. 

It's less likely that stuck in investors' craws, though, as CFO Andrew Vollero had a ready explanation: Most of the loss was primarily due to a one-time $595 million accounting charge related to stock-based compensation triggered by Reddit's IPO early last year. He noted that $575 million of the year's losses occurred in the first quarter, describing this as an "isolated incident."

"You can't expense that as a private company the way that we structured that stock, so we had all of those catch-up charges … that's really what drove the loss in 2024," Vollero said. "The last 3 quarters, we were profitable on a cumulative basis."

As for guidance for the coming year, Vollero said that Reddit isn't guiding out further than three months "because the revenue visibility isn't more than a quarter at this point."

"We're still at a place where we're within the quarter trying to earn about half of our business … so it's hard for us to give a kind of a full year guide," Vollero said. That might be another reason for the trepidation from investors - well, that and the slightly-deflated-from-Q4 guidance for the first quarter of the year.

Reddit expects the first quarter of 2025 to be profitable, bringing in a revenue of between $360 and $370 million, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $80-$90 million. Compared to Q4 2024's revenue of $427.7 million and adjusted EBITDA of $154 million, that's a noticeable drop.

We reached out to Reddit to get a bit more insight into its earnings report and why it thought investors were feeling a bit cool despite claims the platform is doing great, but haven't heard back. ®