On its third-quarter earnings call on October 29, Reddit announced that the site will shift toward an experience built around logged-in users. Testing will begin in some markets outside the US in the fourth quarter, and there is no set timetable for a global rollout.
The immediate reason is falling search traffic. Reddit disclosed that in October, visits arriving from search engines dropped by an average of more than 1 million per week. If the trend continues, daily active users could fall by a double-digit percentage in the fourth quarter. Reuters attributed the slide to Google's AI search features. After the results came out, Reddit's shares fell as much as 18% in after-hours trading.
CEO Steve Huffman said on the call that the shift is a significant one for him personally:
"But I've come to the conclusion that this is the right decision for our platform and the right decision for our business."
Revenue is growing fast, but US users are leaving
The third-quarter numbers look strong on paper. Reddit's revenue was $895 million, up 53% year over year and above Wall Street's expectation of about $875 million. Net income was $283 million, up 74%. Advertising revenue came to $847 million, with other revenue, which includes data licensing, at $48 million.
User numbers tell a different story. Global daily active uniques stood at 130.3 million, flat from the second quarter. US daily actives fell from 53.2 million in Q2 to 50.7 million, down 2% year over year, while international markets grew 24% year over year. In its shareholder letter, Reddit stressed that logged-in and app users grew quarter over quarter both in the US and elsewhere, though the press release does not give the size of those increases.
Why ask users to log in first
TechCrunch laid out two lines of reasoning. One is advertising: logged-in users leave behind more signals about their interests, which allows more precise targeting, and average daily revenue per US user already rose 53% in the third quarter. The other is data: putting content behind a login can block some AI crawlers and gives Reddit more leverage when negotiating licensing deals with model developers.
Reddit has been moving in this direction for several years. In 2023 it began charging for third-party API access, which forced a number of third-party clients to shut down. It later signed data licensing agreements with Google and OpenAI. This month it also announced that RSS will be shut off in November and the public API closed in March next year. Now it is the web experience itself that is changing.
Reddit has left itself some room. The company says the logged-out homepage still matters and will not be closed off entirely, and that logging in does not mean giving up anonymity, since a private browsing mode now being rebuilt will be kept.
How much search traffic is left
A rough calculation: in the second-quarter data, logged-out daily actives were about 77.7 million and logged-in daily actives about 52.6 million, so logged-out visitors made up nearly 60% of the total. Analyst firm Redburn believes most of the growth in that group came from Google search. If fourth-quarter daily actives fall 10% to 12%, the total would land between 115 million and 117 million.
What is missing from this math is the conversion rate. Reddit gave no estimate of how many visitors stopped by the login wall will sign up and how many will simply close the page. The tests are being run outside the US first, and when the US market follows will depend on what the first batch of test data shows.
Sources: Reddit's third-quarter earnings release and shareholder letter, TechCrunch, Reuters, CocoLoop; statements on the earnings call were used to check the drop in search traffic, the fourth-quarter daily active user outlook and the scope of the test markets, and the second-quarter shareholder letter was used to check how logged-in and logged-out daily actives are defined.