Reddit Stock Plunges 22% as U.S. User Growth Slows

This article first appeared on GuruFocus.

Reddit (NYSE:RDDT), an online discussion platform organized around topic-based communities, plunged approximately 22% by Friday's close as investors focused on slower U.S. user growth and volatile search referrals. Second-quarter revenue increased 61% to $805 million, exceeding analysts' estimate of approximately $730.4 million. The sharp decline despite the revenue beat suggests investors placed greater weight on whether Reddit can maintain audience growth.

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U.S. daily active users increased 6%, compared with 7% growth during the previous quarter, while international users expanded 28%. Chief Operating Officer Jen Wong said changes in search-engine traffic affected referrals, although product improvements helped convert some visitors into application users. International average revenue per user was $2.26, substantially below the $11.85 generated in the United States. Reddit also faces increasing competition from Meta Platforms, a social-media company operating Threads and Facebook Forum products.

Reddit expects third-quarter revenue between $860 million and $870 million, above market expectations, and adjusted EBITDA between $385 million and $395 million. At their midpoints, those forecasts equal $865 million of revenue and $390 million of adjusted EBITDA. AI tools are supporting content creation and advertising, but they have not eliminated volatility in search-driven audience acquisition. Investors may now monitor direct application usage, U.S. engagement and international monetization to determine whether advertising growth can remain strong if referral traffic continues fluctuating.

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