Reddit shares plunged about 18% in after-hours trading in New York on Thursday October 29, after the company said it would limit how much of its platform people could view without an account and issued a revenue outlook that fell short of expectations.
Investors seemed to fear that the move would hurt traffic while Reddit’s US daily active users were already falling.
Also Read: Nasdaq falls, futures plunge another 500 points as tech results continue to disappoint
Chief Executive Steve Huffman announced the plan on a call with analysts on Thursday, as Reddit reported its third-quarter results. “Every other platform has done this,” Huffman said. “There’s a lot of opportunity here,” he said adding that logged-in users generated more than 80% of Reddit’s revenue.
Reddit had not decided which parts of the site would stay open to logged-out visitors and it planned to test different approaches in markets outside the US throughout the fourth quarter.
The change marked a big shift for a company that had let people browse its forums freely for two decades. Many users had found Reddit through Google, which left the firm exposed to changes in search rankings and, increasingly, to answers written by artificial intelligence.
Chief Operating Officer Jen Wong accepted the move could shrink Reddit’s reach in the short term, “I think that’s a trade that makes sense for the long term,” she told in an interview, according to a Bloomberg report. She said users with accounts were about 10 times more engaged than those without.
Wong rejected the idea that the plan responded to Reddit’s talks with AI companies over licensing its data, which she called “complicated”. “There’s a wide range of outcomes, including, if it’s strategic, to not renew a partnership,” she said.
Also Read: Amazon shares fall 7% in extended trade after Q3 results show sharp deterioration in free cash flow
Reddit’s shares, which recently joined the S&P 500, had already fallen 44% for the year at Thursday’s close. Its outlook of $1 billion to $1.03 billion missed analysts’ estimates, and US daily active users fell 2% from a year earlier.
Third-quarter sales of $895 million beat forecasts, but global daily active users rose 12% to 130.3 million, short of the 133.5 million analysts expected.
With Bloomberg Inputs