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Home Technology & Startups

Reddit continues to show the flip side of AI: Chart of the Week

February 15, 2025
in Technology & Startups
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This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:

For an impressive seven-quarter stretch from the first quarter of 2022 to the third quarter of 2023, Reddit (RDDT) had more US users that were logged in than logged out.

Another way of saying the majority of the social network’s users were loyal Redditors rather than lurkers just passing by, a level of community loyalty and engagement most companies can only aspire to in slide decks.

And then, a switch flipped.

Starting in the fourth quarter of 2023, the majority of Reddit’s visitors have been logged-out users. In its most recent quarter, daily active users from this cohort fell for the first time in almost two years.

On the company’s first earnings call as a public company in Q1 of 2024, Reddit boasted its largest daily active user (DAU) increase in three years; more than 60% of the increase came from logged-out users, either those who hadn’t bothered to log in or folks who never had an account in the first place.

At the time, Reddit CEO Steve Huffman said it was because “the product is better,” while in the next breath noting the principal reason, “an increase in traffic from Google,” and “largely in the logged-out users.”

Huffman mused that the “Googlebot likes speed,” but as the company readily admits, there was a moment a few years ago when everyone seemed to just start adding “reddit” to the end of Google searches, seeking real opinions from real people amid a chummy sea of increasingly useless search results written by content farms. Or worse: AI.

This same well of user-generated content was thought to make Reddit an ultimate AI play.

And, perhaps in ironic symbiosis, the same company that recognized the content quality and sent its own users to Reddit became its main AI partner.

Our Hamza Shaban wrote 11 months ago that the “AI pivot also undermines one of Reddit’s greatest strengths,” calling the deal a “Faustian bargain in which it sells itself to AI.”

And this week, investors wondered whether the scorpion finally bit the toad.

Reddit’s quarterly results this week failed to live up to the DAU expectations; the stock has dropped around 9% since its results came out late Wednesday.

As Hamza pointed out, Reddit knew this day would come, acknowledging in its IPO filing that “changes in internet search engine algorithms and dynamics could have a negative impact on traffic for our website and, ultimately, our business.”

Of course.

On this week’s call, Huffman was circumspect, projecting calm and noting that, though the algo may giveth and taketh away, the internet’s pie remains big enough.

And internationally, Reddit’s 2024 US story remains very much intact, with logged-out users growing for a fifth straight quarter.

As Huffman said in his first earnings call, “There’s a secular trend that benefits Reddit, which is: In the AI era people value authentic content more or content written by humans, and that’s what Reddit is and that’s what Reddit has.”

And, notably, not always the quick answer, but “the thirst for authentic opinions and advice and commentary and just conversations,” he continued.

The requirement, of course, is that people keep posting, not just searching. For now, at least, they are.

Ethan Wolff-Mann is a Senior Editor at Yahoo Finance, running newsletters. Follow him on X @ewolffmann.

Click here for in-depth analysis of the latest stock market news and events moving stock prices

Read the latest financial and business news from Yahoo Finance

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