What Reddit told shareholders
Reddit reported third-quarter revenue of $895.0m on 29 October, up 53% year over year, with net income of $283.3m and diluted earnings of $1.40 a share. In the same letter to shareholders, chief executive Steve Huffman wrote that “our search referral traffic was down meaningfully in Q3, with the decline accelerating later in the quarter.”
The number that matters is about October, not the quarter that ended in September. “During October, we have seen that search traffic has dropped by more than 1 million referrals on average per week,” the letter says. If that rate holds, Reddit expects total daily active uniques “could fall in Q4, by a low-double-digit percentage from our current base of 130 million DAUqs.”
Where the loss lands
Global daily active uniques averaged 130.3m in the quarter, up 12% year over year. The US figure fell 2% to 50.7m, and US logged-out uniques fell 4% to 27.3m. Reddit’s Form 10-Q names the cause directly: “the increasing use of artificial intelligence to generate summaries and overviews, has resulted in increased volatility in referral traffic.”
The same filing notes that “visitors that come to Reddit from search engines are generally not logged in”. That is why an answer box which satisfies a query without a click removes the least monetisable users first, and why Reddit could post a 53% revenue increase in the quarter its referral traffic broke.
The answer is to close the logged-out door
Huffman’s response is structural. Reddit will shift to what the letter calls “a logged-in-only experience”, and will “begin fully testing this in select markets outside the U.S.” in the fourth quarter. Three reasons are given: faster personalisation, more signals for ad targeting, and protecting “access to Reddit’s extremely valuable corpus of data”.
That last reason is the AI one. Reddit licenses its archive — the company says it added another billion posts and comments this quarter, against a stated total of more than 27bn — and logged-out pages are the surface crawlers reach without an agreement.
What the trade looks like in the numbers
Logged-in daily uniques reached 53.5m globally, up 7%, and Reddit says logged-in and app users supply over 80% of its monetisation. Global average revenue per unique was $6.87; in the US it was $13.82, up 53%.
The conversion runway is mostly unbuilt. The letter says only about 13% of eligible mobile web users currently see the prompt to install the app — and those visitors are largely the search-referred ones, so the pipeline Reddit wants to convert is the pipeline that is shrinking.
Reddit guided fourth-quarter revenue to $1,000m–$1,030m and adjusted EBITDA to $480m–$510m. The 10-Q also discloses a securities class action concerning “the impact of Google Search and its AI Overviews feature on our business.”
What to watch
The logged-in-only tests outside the US, and whether fourth-quarter daily uniques land inside the low-double-digit decline the company has now put in writing. Reddit has told investors the number will fall. The open question is whether logged-in growth covers the gap before advertisers start pricing in a smaller top of the funnel.
