The short version
Reddit (RDDT) beat expectations on Thursday. Revenue of $895 million, up 53%. Earnings of $1.40 a share, up 75%, against about $1.31 expected. Trailing twelve-month revenue passed $3 billion.
On Friday the shares fell about 25%, trading near $97 after closing at $129.60. That is on course to be the steepest single-day fall since the company listed in 2024.
The cause is not the business. It is where its visitors come from.
Chief executive Steve Huffman said search referral traffic fell meaningfully in the quarter, with the decline accelerating, and dropping by more than one million referrals per week in October. He attributed it to Google's AI Overviews and AI Mode.
His argument: people still want Reddit. The word Reddit remains among the most searched terms on Google. What has changed is that an AI summary answers the question on the results page, so fewer people click through.
The number that made it real: US daily active users fell 2% to 50.7 million, the first US decline since the 2024 listing. International users rose 24%.
And the warning: if the trend continues, Reddit says total daily users could fall by a low double-digit percentage this quarter.
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What Reddit reported
- 💵 Revenue: $895 million, up 53% year on year, ahead of expectations.
- 📊 Earnings: $1.40 a share, up 75%, against about $1.31 expected. Net income was $283 million.
- 🎯 Trailing twelve-month revenue passed $3 billion.
- 👥 Daily active users: 130.3 million, up 12% overall, but flat on the previous quarter.
- 🇺🇸 US daily users fell 2% to 50.7 million, the first decline since the 2024 listing.
- 🌍 International daily users rose 24% to 79.6 million.
- 🔁 Buyback: about $100 million of stock repurchased in the quarter, at an average price slightly below $150.
The guidance is what set the share price. Fourth-quarter revenue is guided to $1.0-1.03 billion, below what analysts expected, and the company warned total daily users could fall by a low double-digit percentage if referral declines continue.
Why a company growing 53% fell 25%
Because the market stopped pricing the quarter and started pricing the mechanism.
Reddit's results were strong. But the chief executive explained, in detail and on the record, that the way people find Reddit is changing, and that the change is accelerating and outside his control.
His words were blunt. Search referral traffic was down meaningfully in the quarter with the decline accelerating later in it. In October it was falling by over a million referrals a week. And on AI Mode specifically: it does not drive traffic, not to Reddit and, as far as he knows, not to anybody.
Crucially, he separated demand from distribution. Reddit is still among the most searched terms on Google. People still want it. They are simply being served an answer instead of a link.
That is why the share price moved so much more than the numbers justified. A disappointing quarter is a setback. A structural change in how an entire business is discovered is a different category of problem, and the market repriced accordingly.
It is the clearest example yet of something we keep finding: share prices respond to what changes about the future, not to what happened last quarter.
The deal that is being rewritten
For twenty years the arrangement between search engines and websites was simple. Websites published content. Search engines indexed it and sent visitors. Websites sold advertising to those visitors.
AI summaries change the last step. When the answer appears on the results page, the visit never happens. The content was still used. The traffic was not delivered.
Reddit is an unusually clear case because its content is exactly what people search for: real opinions from real users about specific problems. That makes it ideal material for an AI summary, and it makes a click less necessary.
And here is the part that makes it genuinely complicated. Reddit's two largest data-licensing partners are OpenAI and Google. The same companies paying for its content are building the products that reduce the need to visit it.
We wrote about Alphabet's quarter this week, where Google Cloud grew 103% and capital spending hit $51.4 billion. Reddit's results are what that build-out looks like from the other end.
The lesson: owned audience versus borrowed audience
This is the part worth taking into any business, not just investing.
- 🏠 An owned audience comes directly to you. App users, logged-in members, email subscribers, people who type your name. You control that relationship.
- 🚪 A borrowed audience arrives through someone else's platform. Search results, social feeds, marketplace listings. Somebody else controls the tap.
Borrowed audiences are cheap, abundant and completely conditional. They work beautifully until the platform changes its mind, at which point there is no appeal.
Reddit's saving grace is that its owned audience pays the bills. The company says logged-in and app users account for over 80% of monetisation. The traffic it is losing was the least valuable kind. That is also why revenue grew 53% while US users fell.
The question every company should be able to answer: what share of your customers could you still reach tomorrow if one platform changed a setting?
It is the same question underneath McDonald's deciding it had become too reliant on borrowed brand equity and walking away from a 32-year sponsorship.
What Reddit plans to do about it
Test requiring people to log in. The company said it will trial a logged-in-only experience in selected markets outside the US this quarter, with the chief executive describing it as a test but saying the transition will happen.
The logic: if casual visitors from search are disappearing anyway, convert the remaining ones into registered users who can be reached directly and advertised to properly.
The risk is obvious. Asking people to create an account before reading anything will turn some of them away. A company already losing visitors is choosing to lose more of them deliberately, in exchange for a better relationship with those who stay.
It is a reasonable response to a real problem, and it is unproven. The fourth-quarter numbers will show whether it works.
What could go wrong
- 📉 The decline is accelerating, not stabilising. Over a million fewer referrals a week in October, and management expects the pressure to continue this quarter.
- 👥 The login test could cost more users than it converts. It is explicitly a test, in selected markets, with no results yet.
- 🇺🇸 The US audience is the valuable one and it shrank. Advertisers pay most for US users, and that number fell 2%.
- 🤝 Its data partners are also its disruptors. Licensing revenue from AI companies may not offset traffic lost to AI products.
- 🏷️ Advertising demand has held up so far, but ad budgets follow audiences eventually if audiences keep shrinking.
- 🌊 And it is not only Reddit. Other platforms dependent on search traffic moved lower on the same news. This is an industry-wide change being discovered one company at a time.
RDDT is an example to research, not a recommendation. It is a recently listed company in a sector undergoing rapid structural change.
What should investors take from this?
Ask where a company's customers come from, not just how many it has.
Reddit grew revenue 53% and lost a quarter of its value in a day, because investors concluded the pipe supplying its visitors is narrowing. The accounts described the past. The traffic described the future.
Three habits:
- 🔍 Identify the distribution channel behind any internet business. If one platform supplies most of its customers, that platform is a risk factor whether or not the company lists it as one.
- 🎧 Read what management says on the call, not just the numbers in the release. The most important sentence in this quarter was spoken, not printed.
- 🌐 Watch the second-order effects of a technology shift. Alphabet's AI spending shows up as capital expenditure on one balance sheet and as lost traffic on another. The same change creates winners and losers simultaneously, as we also found when one barrel of oil helped Shell and hurt the airlines.
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FAQs
What did Reddit report for Q3 2026? Revenue of $895 million, up 53%, and earnings of $1.40 a share, up 75%, both ahead of expectations. Net income was $283 million and trailing twelve-month revenue passed $3 billion. Daily active users were 130.3 million, with US users down 2% to 50.7 million and international users up 24%.
Why did Reddit's share price fall? Fourth-quarter revenue guidance of $1.0-1.03 billion came in below expectations, and management disclosed that search referral traffic is falling by more than a million referrals a week, attributing it to Google's AI Overviews and AI Mode. The shares fell about 25%.
What are AI Overviews and AI Mode? Features that answer a search query directly on the results page using AI, rather than primarily presenting links. When the answer appears there, fewer people click through to the websites the answer draws on.
Is demand for Reddit falling? The company says no. Its chief executive noted that Reddit remains among the most searched terms on Google, and that the issue is how people are served results rather than whether they want the content.
Can I invest in Reddit from the UAE? Reddit trades on the New York Stock Exchange under the ticker RDDT. On Nemo.money you can research and invest in US-listed stocks and ETFs from $1 with zero commission, with uninvested cash earning 6% AER interest, paid daily in USD. RDDT is an example to research, not a recommendation. Your capital is at risk.
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