Reddit shares sink on weak sales guidance and plans login requirement test as Google search traffic shrinks

Key points

• Reddit plans to require all users to create accounts to access the platform, testing outside the U.S. in Q4.
• Reddit's shares fell over 15% after weak fourth-quarter sales guidance of $1 billion to $1.03 billion.
• CEO Steve Huffman said shrinking Google search-referral traffic drove the login requirement plan.

Reddit announced Thursday that it plans to require all users to create official accounts to access the platform, a major change for the site known as 'the front page of the internet.' The company disclosed the plan alongside third-quarter earnings that beat revenue and profit estimates but included weak fourth-quarter sales guidance. Reddit shares dropped more than 15% after the results were released.

CEO Steve Huffman told CNBC that shrinking search-referral traffic from Google played a major role in the decision to require logged-in users. He said Google's AI overviews and related features have hurt referral traffic, calling it 'a fundamental shift' in how Google works.

Login requirement details

Huffman did not give a specific timeline for the registration change, saying implementation would involve significant complexity. Reddit will begin testing in the fourth quarter outside the U.S. The company is still deciding which parts of the service logged-out users will be able to see.

Huffman said Reddit is the last major platform to offer largely unfettered logged-out access, and that he has personally held that line. He said the change is 'a sign of the times' and an evolution of how platforms operate.

search referral traffic is down meaningfully in this quarter

— Steve Huffman

Earnings and user numbers

Third-quarter daily active uniques rose 12% year-over-year to 130.3 million, below estimates of 133.7 million. U.S. daily active uniques fell 2% to 50.7 million, under projections of 53.5 million. Sales grew 53% year-over-year, ending eight straight quarters of growth above 60%.

Fourth-quarter sales are guided at $1 billion to $1.03 billion, below the $1.05 billion analysts expected. Average revenue per user was $6.87, above the $6.50 estimate. Other revenue, including data licensing, rose 35% to $48 million. Huffman said Reddit remains in negotiations with Google over its data-licensing agreement.