FILE PHOTO: The company logo for Reddit is displayed on a screen on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., May 15, 2024. REUTERS/Brendan McDermid/File Photo
(Reuters) -Reddit shares fell 6% in early trading on Thursday after the social media firm missed Wall Street estimates for fourth-quarter daily active unique visitors, hit by Google's search algorithm change.
Google's focus on artificial intelligence-generated summaries that provide information on top of search engine results page before traditional website links, likely hit traffic for Reddit, said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
"With AI overviews offering a more diversified digest of topics, it can give more prominence to less well-known sources," Streeter added.
Reddit CEO Steve Huffman said the traffic from Google search has recovered in the first quarter.
Daily active unique visitors rose 39% to 101.7 million in the fourth quarter, but missed analysts' average estimate of 103.3 million, according to data compiled by LSEG.
But a decline in user growth, compared to a 47% increase in the previous quarter, overshadowed the company's better-than-expected revenue forecast for the first quarter and upbeat fourth-quarter revenue.
The company's stock has gained more than six-fold since its debut in March 2024.
The stock is set to lose more than $2 billion from its market value of $38.01 billion as of last close, if losses hold.
At least 10 brokerages raised their price target on the stock, while one trimmed following the results.
The social media platform's international revenue growth outpaced its U.S. performance for the first time since mid-2023, driven by its machine learning language translation roll out.
Reddit has benefited from its AI content licensing deals with Alphabet's Google and Microsoft-backed OpenAI, but they did not provide a meaningful ramp in the fourth quarter.
Huffman said the company is "still working" on various deals. "We are still talking to some of the big players."
Reddit currently trades at 196.90 times the estimates of its earnings for the next 12 months, compared with 26.99 times for Snap and Pinterest's 20.53.
(Reporting by Joel Jose and Jaspreet Singh in Bengaluru; Editing by Shinjini Ganguli)
