Reddit (RDDT): who needs enemies with friends like Google?

0:00 Reddit grew 53%. The stock fell 29%

Who needs enemies when you have friends like Google? Ask Reddit.

I've read the filings and the call. What Google did to Reddit is in there, and it decides whether I'd put money in this. You need the quarter in your head before any of it makes sense, so don't let your eyes glaze over on the numbers.

Reddit sold $895 million in the third quarter, up 53% from a year earlier, and made $283 million in profit. The stock closed at $129.60 that day and $91.73 the next. Down 29%, guys. Over the week, down 36%. Start with the price. A company growing that fast, marked down that hard, looks cheap. A lot of people bought that dip on the headline.

I've bought a stock on a story like this. The story was true. The price already had it in. The money in the quarter wasn't the problem. The users already were, and the shareholder letter adds three things further down. One: Reddit guides $1,000 to $1,030 million for the fourth quarter. That's 38 to 42% growth, down from 53. Still fast.

Two: Reddit says that if October's pace holds, daily users "could fall in Q4, by a low-double-digit percentage from our current base of 130 million DAUqs." Three: Reddit is going to make its visitors log in.

The market priced the next quarter.

1:33 The money is American, and the Americans who log in aren't growing

Reddit counts users in two groups. Logged in: signed into an account. Logged out: not signed in, with an account or without.

The quarterly report says where they come from: "Visitors that come to Reddit from search engines are generally not logged in." In the third quarter Reddit had 130.3 million daily active uniques, its count of unique visitors per day. 76.8 million of them were logged out. That's 59%.

Most of Reddit isn't signed in, and those are Google's people: one question, one thread, gone.

Now the US, where the money is. Reddit made $13.82 per US user in the quarter and $2.43 per user outside the US. US logged-in users: 23.0 million in the first quarter of 2025, 23.4 million in the third quarter of 2026.

Flat, guys. Reddit reports it as 1% growth year over year, three quarters in a row. US logged-out users went from 30.1 million to 27.3 million in a single quarter. Down 9%. So where did a 53% jump in sales come from, if the Americans who log in are flat? The price of the ads.

The quarterly report says it straight: the price of an ad went up 34% from a year earlier, and ad impressions delivered went up 15%. An impression is one ad shown to one person one time. Impressions are reach times how many ads each person sees. Users were up 12% globally and impressions up 15%, so each person saw more ads.

Revenue in the US rose 50% while US users fell 2%. The same American base, at a much higher price. COO Jen Wong on the call: the strategy is "to make every impression more valuable." It worked because the ads work better: clicks up over 50%, and conversions, the purchases and sign-ups after the click, more than tripled, so advertisers pay more. Good. Ad revenue grew 54% to $847 million.

That's a price story, and a price story runs until the advertiser's budget says stop.

3:50 Google stopped sending people, so Reddit builds a wall

Google now answers questions itself, with an AI summary on top of the results. Pew Research followed the searches of 900 US adults in March 2025. On pages with an AI summary, people clicked a regular link in 8% of visits, against 15% on pages without one. Reddit is one of the three sources those summaries cite most. So Google quotes Reddit and the reader doesn't click through.

Reddit's letter: in October, search traffic "dropped by more than 1 million referrals on average per week." CEO Steve Huffman on the AI answers: "it's just not a traffic driver. So we're not counting on that." That's the low-double-digit warning: ten percent of 130 million is 13 million people a day, and that's Google, before the wall goes up.

Huffman in the letter: "a key piece of work to retain new audiences is shifting Reddit to a logged-in-only experience." The test runs in the fourth quarter "in select markets outside the U.S." The quarterly report goes further: "some form of logged-in restrictions globally, including in the United States." An analyst asked whether it's a test. Huffman: "This is a test, but we are going to make this transition."

So it's a test the way a dress rehearsal is a test. Eight months earlier the annual report said the opposite. February 2026: Reddit's "focus has shifted to delivering immediate value for all users ... regardless of whether they are logged in or logged out," and it would stop reporting the two groups from this very quarter.

In October it reported them anyway, and logged out became the thing to fix. A company that turns around in eight months either saw something fast or had no plan for search. I think both. Reddit's logic for the wall is not stupid. Logged-in and app users are "over 80% of the monetization." Wong: they have "order of magnitude, more engagement and frequency than our search referral logged-out users."

If the wall sends away people who were never logged in, it sends away the people who brought in the least, and the ones who stay give Reddit "more signals for ads targeting." The letter admits search brings the logged-in back too. Huffman said the price out loud: "So we will likely be trading reach for engagement."

Now the question: at what rate? How many of the 76.8 million logged-out visitors make an account when the wall goes up? Huffman: "Making Reddit logged-in only will assuredly grow that base. But what the conversion rate is over time, we just don't know."

The company is betting its visitor count on a number it doesn't have. That rate is low: you came for one answer, you don't make an account to read it. Meanwhile Reddit is buying reach. Sales and marketing cost $209.4 million in the quarter, against $128.7 million a year earlier. Up 63%, guys, and that's the pace so far this year.

Wong said spend went up abroad "in part to compensate for the lost reach from the declines of search referral traffic."

The free traffic from Google is being replaced with traffic Reddit buys, and then a wall goes up in front of it.

6:59 Who needs enemies when you have friends like Google?

Huffman has a third reason for the wall, and he says it on the call: "The vast majority of the scraping and stealing of Reddit happens in our logged-out user base." Now, Reddit sells that same data. Other revenue, where the content licences sit, was $48 million, up 35%. The annual report says "substantially all" of the licence value comes from "two of our partners." Reddit doesn't say who.

I think it's Google and OpenAI. Has IP ever stopped an AI? The AI companies weren't allowed to train on other people's work. They did it anyway, and they'll keep doing it until they own the IP themselves. Then the rules matter. Now they sell it back to the people who wrote it. Robin Hood in reverse, guys.

So Reddit sells a licence to the two who pay and a wall to everyone else. Reddit didn't just sell Google something to train on. It sold Google a better way to show Reddit inside Google's own results. The two signed as partners, Google put the summary on top of the page, and the click stayed on Google.

And the wall against everyone else? I've spent over ten years in IT infrastructure, and a login wall is a filter for the lazy. It stops the script that pulls pages without a cookie.

The ones taking Reddit at scale run accounts, and an AI agent logs in the same way you do. Reddit's own quarterly report says so: "AI agents are increasingly able to log in to websites and applications, including Reddit, on users' behalf." Huffman, asked if the wall makes Reddit harder to scrape: "For sure. ... It's not impossible."

A lock on the front door with the windows open. The wall is about the ads.

8:40 Would Gus put money in Reddit?

Reddit's money is fine. Over 80% of it comes from people who log in, and the wall isn't built for them. Operating margin 29%. A business that makes $283 million a quarter does not die of a login prompt.

What changed is what the stock is. Reddit was sold as a user growth story, the user growth was logged out, and logged out was Google's to give. Google took it back.

What's left is 53.5 million logged-in people worldwide, 23 million of them in the US, and a pricing engine that got 34% more per ad this year. That's a real business. It's a different business from the one that was priced at $130. The wall doesn't change the form. Reddit is where you type a question into a search engine and land on a thread. The wall changes the door.

Seven quarters of open doors got US logged-in from 23.0 to 23.4 million. Reddit is betting a closed door does what the open one didn't. I don't believe it does, because nothing in seven quarters moved that line.

Remember the impressions. Reddit is about to cut the reach on purpose, and the quarterly report names the risk: "the total number of Reddit users and/or the reach of advertisements." To hold the ad line, the people who stay have to see more ads, or advertisers have to pay more per ad. The filing already credits "ad load optimization", and the price per ad is up. Both levers are pulled.

Reddit's answer is better targeting behind the wall, so the price keeps rising. On fewer people. Huffman expects "app and logged-in and total DAUq" to "more or less converge." In today's numbers, 130 million and 54 million become one number. He doesn't say where. They meet a lot closer to 54, because that's what a wall does to a search visit.

So, would I put money in it? No. Not because the business is bad. Because the growth depends on two numbers: how many visitors log in at the wall, and how long advertisers keep paying 34% more a year to reach the same Americans. Huffman says he doesn't know the first.

The second holds as long as the ads keep converting like this year, and conversions don't triple twice. Outside the US the logged-in base grew 11%, where a user brings in $2.43. In the US it grew 1%, where a user brings in $13.82.

Weight them by where the money is, and the logged-in base grows 3% a year. Everything above that is more ads per person, a higher price per ad, and visitors the wall is about to filter. What changes my mind is one table in the fourth-quarter letter, due in February: Key Operating Metrics by Geography, the logged-in lines.

The test runs outside the US in Q4, so it shows up first in international logged-in, the line that has slowed from 29% to 11% in two years. If that line jumps past 11% while total users fall by the low double digits, the wall converts, and Reddit grows on people again.

I read the marketing line next to it, because Reddit buys reach abroad. Then I read the US line, 23.4 million. My bar for that line is 5% from a year earlier, a million more Americans logged in. The quarter it gets there with the price per ad still rising, Reddit is a candidate for my money.

Until then it's a good business whose growth is in the ad price, and I don't bet on one lever holding for years. I did once. That's the expensive lesson. Everybody will be watching the user count in February. I'll be reading the logged-in lines and the ad price. This was a Hype Check. In a Hype Check I don't buy the stock, and nothing goes into The Hype Fund.

Reddit came fourth on the Hype Board the week it fell, my weekly top ten of hyped US stocks worth $10 to $100 billion, through the back door: 398 headlines in seven days, 89 sites on one day, the most of the ten. Reddit's share of the hype I count was 0.2%, the smallest of the ten. The press covered the fall.

To the moon! Haha hahaha!