Reddit (RDDT) will soon add a paywall on the platform.
In February, social media CEO Steve Huffman confirmed in an AMA (Ask Me Anything) video that paid subreddits, which refer to its online communities, are “a work in progress right now.”
That upsets Reddit users, who are already complaining about massive ads. “It’s Time to find a new platform,” one user said.
“I’ve been on Reddit for 15 years. People always say this and yet no one has ever found a new platform,” another user replied.
Reddit’s revenue currently relies heavily on advertising, which made up 92% of its total revenue in Q4 2024. The company is actively exploring new monetization strategies, including premium subscriptions, data licensing, and potential e-commerce integrations.
The company has a licensing deal with Google and OpenAI, which allows them to train their AI language models on Reddit data. According to Reuters, Google pays Reddit $60 million a year for its licensing deal.
Last year was a turning point for Reddit. The company went public on March 21, 2024, with an initial public offering price of $34 per share. Reddit closed at $50.44 on its first trading day, marking a 48% rise from the IPO price.
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In the months following the IPO, Reddit’s stock saw significant growth.
The company posted its first-ever quarterly profit in October 2024, reporting earnings of 16 cents per share, beating expectations of a 7-cent loss. Revenue for that quarter surged 68% year over year to $348.4 million, while daily active users jumped 47% to 97.2 million.
The company reached an all-time high of $230 on Feb. 10. However, the stock is now 45% down from that peak.
Reddit reported reported weaker-than-expected user numbers in its fourth-quarter earnings release in February.
What caused Reddit’s recent tumble
Reddit has over 100,000 online communities known as “subreddits,” which host discussions ranging from niche discussions to viral trends.
The company reported reported weaker-than-expected user numbers in its fourth-quarter earnings release in February. Its shares lost 14% in the following three sessions.
Its global daily active unique (DAU) rose 39% year-over-year in Q4 to 101.7 million, falling short of Wall Street estimates of 103.1 million. Company management blamed a Google Search algorithm update for the miss.
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“What happened wasn’t unusual — referrals from search fluctuate from time to time, and they primarily affect logged-out users,” Huffman said. “Our teams have navigated numerous algorithm updates and did an excellent job adapting to these latest changes effectively.”
Huffman said the company’s search-related traffic has recovered in the first quarter.
Despite the DAU shortfall, the company’s Q4 earnings and revenue, as well as its Q1 outlook, all exceeded the consensus estimate.
The stock tumbled again in early March, hit by management stock selling and a broader market downturn. On March 4, CEO Huffman revealed selling $2.24 million in shares. Then, on March 10, the Nasdaq plunged 4% on economic uncertainties, causing a tech sell-off that dragged Reddit down nearly 20%.
Analysts bullish on Reddit after the tumble
Loop Capital said the drop was “excessive” and called Reddit shares “extremely attractive” after the company’s 50% stock price decline, thefly.com reported. The firm reiterated a buy rating and $210 price target.
The analyst expects Reddit’s average revenue per user (ARPU) to grow, driven by better ad tools, increased ad placements—including more ads in comment sections and potential search ads—and more advertisers joining the platform.
In Q4, Reddit’s global ARPU grew 23% year-over-year to $4.21 from $3.42.
Loop said that there would eventually be a product matching Meta’s (META) Advantage+. The firm projects 36% revenue growth and 87% EBITDA growth for the year.
Meanwhile, Raymond James lowered its price target on Reddit to $200 from $250, yet with a strong buy rating.
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The firm cites higher risks of a softer macro environment for the target cut but sees the recent pullback as a buying opportunity. It believes Reddit can reach $50 ARPU in the long run and calls the Q4 DAU miss “transitory.”
Raymond James also expects better on-platform search to add $100 million in revenue next year.
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