Reddit Shifts Toward Mandatory Logins as Google AI Summaries Depress Search Referrals

Reddit delivered third-quarter revenue and earnings that exceeded Wall Street estimates, but its shares dropped more than 25% after management issued weaker-than-expected fourth-quarter guidance and confirmed that automated search summaries are cutting into referral traffic.

The disclosure illustrates how search engines' rapid deployment of generative artificial intelligence is restructuring web traffic. As Google surfaces conversational summaries directly in query results, publishers and community forums face diminishing outbound clicks, forcing platforms to reconsider open-web indexing in favor of closed, authenticated user bases.

For the third quarter, Reddit posted revenue of $895 million, up 53% from a year earlier and above the $877.2 million consensus estimate compiled by S&P analysts. Adjusted EBITDA reached $402.3 million—a 44.9% margin—topping forecasts of $397.1 million. GAAP diluted earnings per share came in at $1.40 against an expected $1.33. Operating margin widened to 29.2% from 23.7% in the prior-year period, while average revenue per user grew 52.9% to $13.82.

Despite those gains, Reddit's fourth-quarter outlook fell short of market projections. Management guided for revenue between $1.00 billion and $1.03 billion, putting the midpoint of $1.02 billion below the consensus analyst target of $1.04 billion. The company projected adjusted EBITDA of $480 million to $510 million, with a $495 million midpoint trailing Wall Street's $509.4 million estimate. The stock slid 25.2% during morning trading following the report, falling to $92.26.

On the earnings call, as covered by Yahoo Finance (https://finance.yahoo.com/markets/stocks/articles/5-must-read-analyst-questions-184536184.html?.tsrc=rss), Chief Executive Officer Steve Huffman attributed user softness to shifts in search referrals, noting that traffic dropped by more than 1 million weekly visits in October as Google expanded its AI Overviews. Domestic daily active visitors fell by 900,000 year over year to 50.7 million, and Huffman warned that daily active unique visitors in the fourth quarter could decline by a low-double-digit percentage.

In response to the disruption, Reddit has begun testing requirements that compel visitors to log in before viewing forum threads. Answering analyst questions on the call, Huffman described the shift as an active test that the company intends to make permanent. Beyond encouraging persistent daily habits, Huffman confirmed the wall will make Reddit harder for automated web scrapers to index without commercial licensing agreements.

Chief Operating Officer Jen Wong told analysts that casual web visitors contribute little to advertising returns, emphasizing that logged-in web and mobile application users generate more than 80% of total platform monetization. Reddit has started direct app-install campaigns to convert anonymous readers into permanent accounts, though Wong noted those marketing efforts remain early and modest in scope.

Reddit ended the quarter with $3.03 billion in cash and equivalents against $31.41 million in total debt. The company's performance in upcoming quarters will depend on whether increased ad monetization and retention among authenticated app users can outpace the ongoing erosion of casual search-driven traffic.