Reddit shares drop 11% after hours, search referrals fall

Reddit, Inc. (RDDT) said on Oct. 29 that third-quarter revenue rose 53% from $584.9 million a year earlier, to $894.96 million, in line with the $895.53 million consensus estimate compiled by Finnhub.

Shares fell 11.0% in after-hours trading as of 4:10 p.m. ET, from a regular-session close of $129.75.

Founder and CEO Steve Huffman said in the earnings release: "Our business is growing because the Reddit experience captures the human experience in a way that no other platform can replicate." Net income was $283.3 million, up 74% from a year earlier, and adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, was $402.3 million, up 70%.

Here's how the company did:

• Revenue: $894.96 million vs. $584.9 million a year earlier, and $895.53 million expected, according to Finnhub
• Diluted EPS: $1.40 vs. 80 cents a year earlier
• Net income: $283.3 million vs. $162.7 million a year earlier
• Adjusted EBITDA: $402.3 million vs. $236.0 million a year earlier
• Operating cash flow: $363.8 million vs. $185.2 million a year earlier

Search referral slowdown

The shareholder letter said search referral traffic fell meaningfully in the third quarter, with the decline accelerating later in the quarter. The biggest impact was on logged-out and web traffic, the company said.

During October, search traffic dropped by more than 1 million referrals on average per week, the letter said. If that rate of decline continues, current trends suggest total DAUq could fall in the fourth quarter by a low-double-digit percentage from the current base of 130 million.

Users and monetization

Daily active uniques, or DAUq, rose 12% to 130.3 million, and weekly active uniques rose 16% to 515.2 million. U.S. DAUq fell 2%, while international DAUq grew 24%.

Average revenue per unique was $6.87, up 36% from a year earlier. Advertising revenue was $847 million, up 54%, and other revenue was $48 million, up 35%.

The letter also said the company plans to move Reddit to a logged-in-only experience, with tests beginning in the fourth quarter in select markets outside the U.S. Logged-in and app DAUq make up the vast majority of engagement, the letter said.

Fourth-quarter outlook

For the fourth quarter, the company estimates revenue of $1,000 million to $1,030 million and adjusted EBITDA of $480 million to $510 million. It said it has not provided a reconciliation of those non-GAAP guidance figures to GAAP guidance, because of uncertainty about reconciling items.

Capital returns

Reddit repurchased about 670 thousand Class A shares for $100 million in the quarter, at an average price of $149.81 per share. It ended the quarter with $3.03 billion in cash, cash equivalents and marketable securities, and fully diluted shares outstanding of 206.3 million.

The company was added to the S&P 500 index earlier in the quarter, the release said.