Daily Update: Reddit's User Expansion Decelerates

Breakfast News: Reddit's User Growth Slows Down

February 13, 2025

Daily Update: Reddit's User Expansion Decelerates

Here's a peek at the market trends:

| Wednesday's Markets || --- || S&P 500 | 6,052 (-0.27%) || Nasdaq | 19,650 (+0.03%) || Dow | 44,369 (-0.5%) || Bitcoin | $97,544 (+1.2%) |

1. Reddit takes a Hit from Alphabet's Algorithm Shift

Reddit (RDDT 1.25%) plunged over 18% after market close, a surprising turn despite reporting a 71.3% revenue surge compared to the previous year. This dip can partly be blamed on lower user growth following an algorithm adjustment from Alphabet (GOOG 1.18%).

S&P 500
6,052

• "Google volatility is nothing new to us": CEO Steve Huffman admitted that Reddit often benefits from algorithm changes, and he noted a Q1 recovery in search-related traffic.
• User engagement and strong community growth are vital: Revenue results showed a consistent average of 101.7 million daily active users, a 39% hike from the previous year. However, this figure fell short of analyst forecasts, making lower user growth a critical concern since the majority of revenue comes from advertising.

2. Apple and Alibaba Team Up for AI Features in China

Nasdaq
19,650

Alibaba (BABA -2.96%) Chairman Joe Tsai confirmed widespread rumors – Alibaba would be supporting AI features for iPhones in China, helping Apple (AAPL 1.91%) revive its product sales in the country.

• "Apple is quite selective in its partnerships, and they chose us": Tsai referred to the Chinese AI market becoming increasingly competitive with Baidu (BIDU -2.05%) announcing it would make its AI chatbot free to use. This collaboration with Apple marks a significant win for Alibaba, with its stock reaching an all-time high since 2022.
• The world's largest market for smartphones and AI: Apple's most recent figures showed an 11% decrease in sales in China, prompted by arduous regulations. Since the AI features can't be launched without a local partner, this partnership might help alleviate investor concerns in this region.

Dow
44,369

3. The Trade Desk Experiences a Bump in the Road

The Trade Desk (TTD -1.64%) saw a 26% plunge in after-hours trading after missing its revenue target for the first time as a public company. As dedicated long-term investors, remember that brief shrubberies aren't cause for immediate panic; instead, take the time to examine if your investing thesis remains intact.

Bitcoin
$97,544

• "We stumbled across a series of small missteps": CEO Jeff Green acknowledged the ramifications of the results, outlining a 15-point plan for improvement, including increasing brand-direct efforts and more AI investment.
• There's always a silver lining: Despite missing revenue expectations, the overall quarterly figure was still up 22% compared to the previous year. Additionally, The Trade Desk has secured an agreement to acquire Sincera, a digital advertising data company, which could fuel further growth this year.

4. Key Focus Areas for Thursday

RDDT

Rule Breakers rec Airbnb (ABNB -0.42%) will report Q4 earnings post-market, with analysts eyeing expansion in key markets and the significance of removing 300,000 subpar listings.

GOOG

• Ranked 8th for its ability to outperform the market over the next five years: Airbnb management announced two new initiatives that could generate $1 billion or more in revenue.**
• Revenue projected to increase by over 20%: Datadog (DDOG 2.66%), which has consistently beaten the S&P 500 by 19% since its Stock Advisor recommendation, will report today. Investors should also monitor any increased demand for AI-supported security products and strong client retention rates.

BABA

5. Powell Flagging Caution After Inflation

AAPL

Federal Reserve Chair Jerome Powell expressed concern about continued inflation management after headline CPI exceeded expectations, causing an initial market downturn.

BIDU

• "We still have work to do": Traders now anticipate less than a 25bps interest rate cut for 2025. Powell reinforced his commitment to maintaining elevated interest rates for some time.
• Inflation back at 2024 levels in June: The core reading, excluding food and energy, climbed to 3.3%, surpassing the 3.1% consensus and higher than last month's 3.2%. This 0.4% monthly increase was the largest since March 2023.

TTD

6. Casual Chatter

ABNB

What factors drive your decision to sell losers in your portfolio? Join the conversation with friends and family or become a member to engage with fellow Fools.

DDOG

Additional Information (Enrichment Data):

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Reddit's stock drop might have resulted from several reasons:

1. Disappointing User Growth: Despite reporting a 39% year-over-year increase in daily active unique users, reaching 101.7 million, the figure fell short of Wall Street's expectations[2][4][5]. This shortfall caused investor concerns and the resulting stock drop.
2. Google Algorithm Change: A tweak in Google's search algorithm led to volatility in Reddit's user traffic, primarily affecting logged-out users who rely on search engines to access the platform[2][4][5]. This change was identified by Reddit CEO Steve Huffman as a temporary issue.
3. Logged-Out vs. Logged-In Users: The impact of the Google algorithm change was primarily felt by logged-out users, who are less valuable to Reddit's business compared to logged-in users. Logged-in user numbers grew by 27% in 2025, however, indicating a more stable core user base[2].

The Google algorithm change led to fluctuations in traffic, mainly affecting logged-out users. Despite this, Huffman noted a Q1 recovery in search-related traffic[4][5]. Reddit is focusing on converting logged-out users into logged-in accounts through tools like Reddit Answers, an AI-powered search tool designed to boost user engagement and retention[1][2].

1. Understanding Reddit's revenue surge and subsequent stock drop, the CEO admitted, "Google volatility is nothing new to us," and hinted at a Q1 recovery in search-related traffic.
2. Revenue growth is not just about quantity but also about quality. Despite a robust 39% increase in daily active users, Reddit fell short of analyst forecasts, making lower user growth a significant concern.
3. To enhance its product sales in China, Apple will be partnering with Alibaba for AI features, which could help alleviate investor concerns regarding arduous regulations.
4. When discussing investment strategies, it's essential to remain patient and assess the underlying thesis, even during challenging periods like The Trade Desk's 26% plunge in after-hours trading.

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