Liberal Hangout Reddit Craters After Google Algo Change Cripples User Growth

For much of the past few months we had watched in stunned amazement as the world's most overvalued and censored website, not to mentioned favorite haunt of woke and recently laid off deep state communists and various other radical liberals, saw its price rise by a multiple of 2025 revenue every single day (rising as high as 31 turns of 2025 revenue)...

... and not all the stupid explanations - it will be used by chatGPT scanners for its content, it is growing faster than X, it should be valued at a multiple of 2026 EBITDA... and we actually aren't even joking about that, Deutsche Bank really said the stock was cheap because it was trading at only 60x 2026 EBITDA...

... made a shred of sense to explain what was clearly a bubble.

Well, that bubble just popped after hours when the company reported results that were slightly better than estimates, but missed on the all important daily active users, which promptly imploded the unlimited growth story that the narrative has been pushing here.

Here is what the company just reported for Q4:

• Revenue $427.7 million, estimate $405.5 million
  • Advertising rev. $394.5 million, estimate $367.3 million
  • Other revenue $33.2 million, estimate $36.1 million
    
• Adjusted Ebitda $154.3 million, estimate $128.7 million
• Net income $71 million, estimate $46.9 million
  
• Average rev. per user $4.21, estimate $3.91
  • US average rev. per user $7.04, estimate $6.35
  • International average rev. per user $1.67, estimate $1.50
• Free cash flow $89.2 million.

That was the good part, here is the bad: it took a lot of spending to push up the company's revenues to the desired range

• R&D expenses $188.6 million, estimate $174 million

And here is the ugly: the company missed badly on the number of daily users.

• Daily active users 101.7 million, missing the estimate 103.81 million
  • US daily active users 48 million, missing the  estimate 51.52 million
  • International daily active users 53.7 million, beating estimates of 51.84 million

Worse, while low-ARPU international users continued to grow in Q4 - because the company used its "huge investments" in AI to add a translator...

... US users actually declined in Q4 from 48.2 million to 48.0 million. So much for the growth case (and that's even with millions of deep staters laid off thanks to DOGE).

Reddit said user growth slowed after Google made a change to its algorithm that impacted search traffic. The forum-based site had benefited from deals that surface Reddit results in search engines, including Google and OpenAI’s ChatGPT. According to Bloomberg, over the past few years, Google has accounted for as much as 50% of Reddit’s traffic in a single day, making the social media site susceptible to changes in Google’s search engine.

And sure enough, realizing that it had helped blow a huge Reddit bubble, Google changed its algo, Reddit user growth not only slumped, but in the case of the US, it posted its first decline in over a decade.

Commenting on the results, Bloomberg said that RDDT plunged after the slow down in Q4 user growth was seen as "a sign the newly public company is struggling to keep up with larger digital advertising peers Meta Platforms Inc. and Alphabet Inc.’s Google."

And sure enough, RDDT shares cratered as much as 20% after hours, but it has a long way to drop as the stock has increased more than sixfold since it went public last March, and had already jumped more than 30% this year, significantly outpacing the broader market. It’s been one of the best performing stocks to go public since the market for IPOs began to slow in 2022. Unfortunately, now that US growth has peaked and is declining, the growth case is over and there will be a lof of pain as the company find its new fair value some 70% lower...