Reddit closed down 29.27% on Friday, the worst drop since becoming a public company in 2024, after it forecast weak Q4 revenue

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Reddit shares plummeted 29.27% on Friday, marking its steepest decline since its 2024 public debut. This sharp drop followed the company's release of its third-quarter earnings report, which included a weaker-than-anticipated revenue forecast for the fourth quarter. Reddit projected Q4 sales between $1 billion and $1.03 billion, falling short of the $1.05 billion estimated by analysts. Despite this guidance, the company's Q3 sales grew 53% year-over-year, and it surpassed Wall Street's expectations for both earnings and revenue in that quarter. Concurrently, Reddit announced plans to pilot a mandatory login requirement for platform access, a significant departure for the social media site. This move comes amidst a noticeable decrease in search referral traffic from Google, which CEO Steve Huffman attributed to the proliferation of AI-driven search overviews.

The social media platform's decision to test mandatory logins signals a strategic pivot driven by evolving search dynamics. With Google's AI Overviews diminishing search referral traffic, Reddit aims to bolster logged-in user engagement, a metric more amenable to its advertising business. This shift reflects a broader industry trend where platforms are re-evaluating their open-access models in favor of controlled environments that better serve advertising monetization strategies.

The market's harsh reaction underscores investor concern over Reddit's reliance on search referrals and the potential disruption caused by AI. Analysts are highlighting the vulnerability of content-selling models to these search engine changes, predicting increased pressure on user monetization and growth. The mandatory login requirement, while intended to boost core metrics, introduces user friction and uncertainty, which investors are closely watching as the company navigates this transitional period.