On February 12, 2025, Reddit’s stock experienced a sharp decline, falling more than 15% following the release of its fourth-quarter earnings report for 2024. The primary concern among investors was the company’s user growth, which failed to meet Wall Street expectations. A key factor behind this shortfall was a Google search algorithm update that affected the flow of traffic to Reddit, particularly among users who visit the platform without logging in.

Reddit reported a significant year-over-year increase in daily active unique users, reaching 101.7 million, a 39% rise. However, this still fell short of analysts’ projections of 103.1 million. Logged-in users grew by 27% to 46.1 million, while logged-out users saw an even greater increase of 51%, reaching 55.6 million. The logged-out user base, which relies heavily on search engine referrals, was the most impacted by Google’s algorithm changes.

Despite this dip in user growth, Reddit exceeded financial expectations. The company generated $428 million in revenue, surpassing the projected $405 million. Earnings per share also outperformed estimates, coming in at 36 cents against an expected 25 cents. Additionally, the company’s net income saw a significant boost, quadrupling to $71 million.

CEO Steve Huffman acknowledged the disruption caused by the Google search update but remained optimistic. He reassured investors that while algorithm changes can create short-term volatility, Reddit has successfully adapted to similar shifts in the past. Huffman also noted that search-driven traffic had already begun stabilizing in the first quarter of 2025.

Reddit’s financial growth in 2024 was impressive. Revenue surged 71% compared to Q4 2023, when it stood at $250 million. However, the stock drop highlights the importance of user growth in investor sentiment. Reddit went public in March 2024 at $34 per share, and its stock had soared sixfold, reaching $216.47 before this recent decline. Prior to the drop, Reddit’s stock had already gained 32% in 2025 alone.

Competition in the digital advertising space remains fierce. Other major players in the industry also reported strong Q4 earnings. Amazon’s online ad revenue grew 18% to $17.29 billion, while Meta reported $48.39 billion in revenue, marking a 21% increase. Google Ads generated $72.46 billion, with YouTube alone contributing $10.47 billion. Even smaller platforms like Snapchat and Pinterest posted double-digit revenue growth. In comparison, Reddit remains a much smaller player, but its rapid revenue expansion signals growing confidence from advertisers.

Looking ahead, Reddit remains optimistic about its growth trajectory. The company’s revenue forecast for Q1 2025 stands between $360 million and $370 million, exceeding analysts’ expectations. This strong projection indicates that Reddit’s monetization strategies are working effectively despite fluctuations in user traffic.

While the drop in stock price is a setback, Reddit has a track record of resilience. As Huffman pointed out, the platform has successfully navigated search engine changes before, and it intends to do so again. Investors and users will be watching closely to see how Reddit continues to evolve in response to these challenges.

This situation highlights the increasing need for major platforms to diversify their traffic sources. Dependence on search engine referrals can leave companies vulnerable when algorithm changes occur. As search engines continue to refine their ranking systems, businesses that rely heavily on organic search traffic may need to adapt quickly to avoid sudden disruptions.

Despite recent volatility, Reddit’s financial performance remains strong, and its long-term growth potential appears promising. As the company refines its strategies to navigate changes in search visibility, it has an opportunity to strengthen its position in the digital advertising landscape.