Reddit Stock Tumbles After User Growth Fails To Impress Investors

Reddit stock took a bit of a tumble on Feb. 13 after the company’s Q4 earnings delivered something of a mixed report, according to CNBC.

Front and center was the news that Reddit had failed to meet Wall Street expectations concerning one key metric: global daily unique visitors. Expectations were set around a figure of 103.1 million daily unique visitors, but the platform fell short of this mark, achieving only 101.7 million.

In a letter to shareholders, CEO Steve Huffman explained that Reddit had experienced some degree of traffic volatility resulting from an algorithm change issued by Google. Huffman continued to underscore the fact that such Google algorithm changes take place about twice a year, but they typically only affect logged-out users who visit the site without an account. However, the CEO also indicated that traffic had already begun to recover from the algorithm shift.

“What happened wasn’t unusual — referrals from search fluctuate from time to time, and they primarily affect logged-out users,” Huffman wrote. “Our teams have navigated numerous algorithm updates and did an excellent job adapting to these latest changes effectively.”

Reddit Stock Falls Despite Strong Revenue, EPS Results

Even though Reddit failed to meet investor expectations regarding the strict daily user count metric, it nevertheless did manage to grow that number by 39% versus a year ago.

Further, earnings per share (EPS) and revenue results outperformed analyst expectations. LSEG analysts had predicted an EPS of 25 cents per share — Reddit actually managed to eke out 36 cents per share — in addition to $405 billion in revenue. Regarding revenue, Reddit racked up an impressive $428 billion for the period. Sales grew by a significant 71% versus a year prior.

This good news was not enough to assure the market, however. As of 1:52 p.m. ET on Feb. 13, Reddit stock had dipped downward by 5.57%, resting at a price of $204.42.

With all that being said, MarketWatch cited Raymond James analyst Josh Beck, who called the stock dip a buying opportunity. Gesturing toward Reddit benefiting from deeper Google crawling, an increase in both revenue and daily active users, and an increase in spam-reduction algorithm updates, Beck remained bullish over the company’s prospects.

“While the report did not clear our anticipated bar [Raymond James expected a more substantial revenue beat], we walk away encouraged by international upside,” Beck wrote.