Reddit (RDDT) Falls 25% Despite Q3 2026 Earnings Beat

Reddit (RDDT) shares fell about 25% after a third-quarter beat, as the CEO warned that falling Google search referrals could cut daily visitors by a low double-digit percentage.

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What Did Reddit Report for the Third Quarter?

Reddit reported revenue of $895M for the third quarter, up 53% from a year earlier and about 2.3% above the $874.9M consensus. Diluted earnings were $1.40 per share against an expected $1.33. Net income rose about 70% to $283M, and adjusted EBITDA reached $402M, a 45% margin. Free cash flow was $363M, nearly double the prior-year figure.

Advertising, which accounts for about 95% of revenue, grew 54% to $847M. Performance formats such as shopping and app-install ads grew by more than 95%, while video revenue at the top of the marketing funnel more than doubled. Average revenue per user rose 36% to $6.87. International revenue grew 67% to $176M, outpacing the 50% rise in the United States.

User growth was weaker. Daily active uniques rose 12% to 130.3M. U.S. users declined 2%, while international users grew 24%.

Why Did Reddit Shares Plunge After a Beat?

Reddit shares plunged because the forward view overshadowed the quarter. Huffman said search referrals fell by more than 1 million per week on average in October, with the decline accelerating late in the third quarter. He attributed the drop to Google's AI Overviews and AI Mode, which place answers at the top of the results page and push outside links lower. If current trends hold, total daily active uniques could fall by a low double-digit percentage in Q4 from the roughly 130M base.

The company guided fourth-quarter revenue to $1.0B-$1.03B, or 38-42% growth, and adjusted EBITDA to $480M-$510M, about a 49% margin at the midpoint. The outlook marks a deceleration of more than 10 percentage points from Q3. The reaction was heavy because Reddit's valuation had rested on sustained high growth, and shares were already down more than 60% from their 52-week high. Several brokerages downgraded the stock, and others cut price targets.

How Exposed Is Reddit to Google Search Traffic?

Reddit is exposed mainly through logged-out visitors, who arrive from search and account for most of its audience growth, though not most of its revenue. Management said about 80% of monetization comes from the app and logged-in users, who are more engaged and more valuable to advertisers. That gives the business a partial buffer, since the traffic at risk is the least monetized segment.

The shift still affects the business model. Search referrals have been a cheap source of new users, a funnel into account creation, and a driver of ad inventory. As AI-generated summaries answer queries directly, publishers across the web face the same compression.

Reddit plans to test a logged-in-only experience in select markets outside the U.S. during Q4. The aim is to convert casual visitors into account holders rather than rely on search traffic. Huffman said the company remains in active discussions on content licensing, and that any deal must advance its long-term strategy and reflect a fair exchange of value. Reddit's archive of user discussion is a sought-after input for AI developers.

Sector Reaction

The selloff spread to other ad-supported social platforms, though less sharply. Snap (SNAP) fell about 5% and Pinterest (PINS) about 4%, while Meta Platforms (META) edged lower. Investors are weighing whether Reddit's problem is company-specific or an early sign of how AI-driven search will reshape traffic for platforms that depend on it.

What Comes Next for Reddit Stock?

The next test is Reddit's fourth-quarter report, which will show whether the user decline arrives as warned and how far advertising revenue holds up if it does. The warning was conditional on current trends continuing, so any stabilization in search referrals would change the outlook. Three variables will drive sentiment in the meantime:

• The pace of search-referral losses reported by the company.
• The success of logged-in conversion efforts and the international tests.
• The status of AI data-licensing talks, which could add revenue independent of traffic.

Outlook

Reddit delivered a strong quarter, with revenue up 53%, EBITDA margins at 45% and cash flow nearly doubling. The market looked past it to a Q4 in which user counts may fall and growth slows to 38-42%. The shares' 25% drop reflects a repricing of the risk that Google's AI features cut off the traffic Reddit has relied on for its audience growth. The company's response, a shift toward logged-in users and international markets, will determine whether the revenue model can outgrow the loss of search referrals.