Reddit flags volatile search referrals as US user growth slows

By Jaspreet Singh

July 30 (Reuters) - Reddit ‌said on ​Thursday that ​choppy search-engine traffic affected U.S. user growth in the second quarter, overshadowing an upbeat revenue forecast and sending its shares down around ‌13% in extended trading.

The social media company operates in a highly ⁠competitive market. Bigger rival Meta through its Threads communities hub and new Forum app for Facebook ‌Groups users appears to be ‌directly targeting Reddit's core community model.

"Search referrals were choppy in the quarter, and traffic was more volatile later in the quarter, but the bigger picture ​is unchanged: the commercial business is strong," co-founder and CEO Steve Huffman said in a letter to shareholders.

Growth in its U.S. daily active unique visitors (DAUq) ⁠slowed to 6% in the second quarter from 7% in the prior three-month period. Global DAUq rose ​18% from a year earlier to 130.3 million and was slightly higher than prior quarter growth.

COO Jen Wong told Reuters that "SEO ​headwinds" caused by changes in search algorithms "more than ‌offset" the company's efforts in terms of user acquisition in the quarter.

Still, product improvements are helping convert lower-engagement visitors from ⁠search engines into loyal app users, she said.

Reddit also forecast slower revenue growth in the third quarter. However, the forecast range of $860 million to $870 million was above LSEG-compiled analysts' average ⁠estimate of $829.1 million.

"The company's advertiser growth in the second quarter was 70% year-over-year. So, we ​continue to onboard a lot more new advertisers onto Reddit," Wong said.

She added the growth was particularly strong among mid-market and small- and medium-sized businesses and international advertisers.

The company's AI-powered ‌tools are designed to enhance campaign performance by offering a library of successful ads, generating Reddit-specific ad copy, tracking visitor ‌actions after exposure and enabling interest and community-based targeting within subreddit discussions.

Second-quarter revenue rose 61% ⁠to $805 million, beating estimates of $730.4 ‌million.

Reddit expects quarterly adjusted earnings ​before interest, taxes, depreciation and amortization of $385 million to $395 million, above estimates of $369 million.

(Reporting by Jaspreet Singh in Bengaluru; Editing by ‌Sriraj Kalluvila)

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