What changed and why it matters
Reddit said it intends to make logging in with an official account a baseline for accessing the site - a big shift for a platform long known as "the front page of the internet." CEO Steve Huffman called it a "big change" for him, saying he "grew up on the open Internet," and added, "Reddit is the last platform to provide basically unfettered logged-out access, and that's largely because of me, I've been holding that line."
Huffman told CNBC that reduced search referrals from Google are a major factor behind the plan. He said earlier Google algorithm tweaks "kind of come and go," but its AI push represents "a fundamental shift in how the Google product works, from being a traffic driver to whatever's going on now." With that, he said Reddit will focus more on users who come directly.
Reddit will begin testing the registration requirement in the fourth quarter outside the U.S. Huffman did not give a timeline for a broader rollout, noting it will be complex to implement. During the experiments, the company will determine whether, and how much, content logged-out users can view, and finalize those parameters as the trials proceed.
Users, traffic and the push to log in
Year over year, Daily active uniques (DAUq) increased 12%, reaching 130.3 million in the third quarter, below Wall Street's 133.7 million projection. In the U.S., DAUq declined 2% to 50.7 million, below projections of 53.5 million.
Huffman said "search referral traffic is down meaningfully in this quarter" and expects the trend to continue in the fourth quarter. He emphasized making Reddit "a daily habit," adding, "So that's where our focus is: growing those app users and logged-in users." He also said, "The vast majority of our revenue comes from our app users and logged-in users are direct traffic, and both of those are up Q. over Q. and so that's where our focus is."
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Reddit said it can monetize registered users better than logged out visitors, in part because logged in users are more active and more valuable to advertisers. The company said it derives most of its sales from online advertising.
Q3 beat, Q4 guide and the data deals
Earnings per share were $1.40 versus LSEG's $1.35 estimate, and revenue was $895 million against a $878 million forecast. Shares dropped over 15% after the results were released. Third quarter sales grew 53% year over year, ending a streak of eight consecutive quarters with revenue growth above 60%, a run it noted in July with its second quarter results. Average revenue per user was $6.87, topping the $6.50 analysts expected.
The "other revenue" segment, which includes data licensing, rose 35% year over year to $48 million. Reddit named OpenAI and Google as its two largest data licensing partners. Huffman said Reddit remains "in negotiations" with Google and is "only going to do a deal that makes sense for Reddit."
For the fourth quarter, Reddit guided revenue to a range of $1.00 billion to $1.03 billion, below the $1.05 billion Wall Street projected. Huffman called it "still a strong guide," saying growth remains at an industry leading pace despite headwinds from search referrals.
The bottom line for investors
Reddit is shifting toward traffic it says it monetizes better - app and logged in users - as search referrals from Google fade. It will test access changes abroad in Q4, decide what logged out users can see, and proceed without a set launch date, so engagement and ad metrics may evolve over several quarters.
Huffman expects users "will probably go through the same understanding that I have, which is that it's a sign of the times. It's an evolution of how these platforms work." For your portfolio, watch Q4 tests, DAUq trends, ARPU, and any updates on the Google data agreement as signals for how the strategy converts to revenue.
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