Here is the contradiction at the center of Reddit’s earnings: revenue of $895 million grew 53% year over year, net income came in at $283 million, and diluted EPS reached $1.40, both up more than 70% year over year. Adjusted EBITDA margin hit 45%. The financials look, by any ordinary measure, excellent.
Then the stock dropped about 18%.
Shares fell sharply after hours to around $106, down about 18% from the regular-session close of $129.60, as management warned that growth is likely to slow in the fourth quarter amid weaker search traffic and a broader shift in how users find the platform. That reaction deserves more attention than the earnings beat itself.
The Traffic Problem
U.S. daily active uniques decreased 2% year over year in Q3, a number that stood out sharply against 24% international DAUq growth in the same period. Total DAUq of 130.3 million was flat with Q2’s figure, and the growth rate had already decelerated from 18% last quarter to 12% this one.
The cause is increasingly legible. CEO Steve Huffman highlighted risks tied to weakening referral traffic from Google’s AI search features and proposed new user login requirements to combat data scraping, which may dampen casual user engagement. Huffman noted that search referral traffic was down meaningfully in Q3, with the decline accelerating later in the quarter and continuing into October. In October alone, search referrals dropped by more than 1 million per week on average.
Management said Google’s AI Overviews and AI Mode are reducing search referrals, especially for logged-out users. This is the crux of the worry. Reddit has built a significant portion of its top-of-funnel reach on the back of Google sending curious searchers to its threads. When Google answers the question itself, that visitor never arrives.
The Logged-In Gamble
Management’s proposed fix introduces its own risk. Reddit plans to test logged-in-only access in select markets outside the U.S. in Q4, trading some reach for engagement. The logic is defensible: more than 80% of monetization comes from logged-in and app users. Fewer logged-out visitors means less ad inventory wasted on users who never convert. But the conversion rate from forced sign-up to active account is unknown, and the friction could simply reduce traffic with no offsetting benefit.
What the Guide Says
For Q4, Reddit guided to revenue of $1.00 billion to $1.03 billion, falling short of analyst expectations of about $1.05 billion at the midpoint. Q4 revenue guidance implies 38% to 42% year-over-year growth, a meaningful step down from the 53% pace just reported. Management warned that if the search decline continues, total DAUqs could fall by a low double-digit percentage in Q4 from the current base of 130 million.
Bull vs. Bear
The bull case starts with the income statement. Reddit is genuinely profitable, generates substantial free cash flow, and has a monetization engine that keeps improving even as user counts wobble. The bear case is that the traffic problem is structural, not cyclical.
Huffman acknowledged in his shareholder letter that web search is evolving from a gateway to the web to becoming an AI-powered destination itself. Reddit has content licensing deals with both Google and OpenAI, so it is being paid to help train the same systems that are now intercepting its users. That irony cuts both ways: it provides revenue today and accelerates the risk tomorrow.
What to Watch
The single most important metric in Q4 is not revenue. It is whether U.S. DAUqs stabilize or continue to slide. Investors appear to be looking past the Q3 revenue and EPS figures and toward user engagement, search referral trends, and monetization risk. If logged-in conversion rates from the new login tests come in strong, the stock has a credible path back. If October’s referral decline deepens through November and December, the guide may prove optimistic.
Reddit is not a broken business. Its margins are among the best in social media and its international expansion is real. But the company now faces a structural question about whether Google’s AI ambitions are quietly dismantling the discovery channel that powered its growth, and no earnings beat changes that.
