Evercose ISI downgrades Reddit, says monetization may not offset traffic weakness

Investing.com -- Evercore ISI downgraded Reddit to In Line from Outperform on Friday and slashed its price target to $120 from $265 after the social media company reported third-quarter results that beat estimates but warned of declining traffic pressured by AI search summaries.

Analyst Mark Mahaney wrote that the firm is "incrementally more concerned about user durability," noting that U.S. daily active users fell 2% year over year. Management warned that global daily active users could fall by a low-double-digit percentage in the fourth quarter from approximately 130 million if search-referral losses continue at October's pace.

The analyst said management believes Google's AI-driven search changes and lower rankings for machine-translated content may represent structural headwinds. Evercore said it remains constructive on monetization but has less confidence that gains can sustainably offset user growth pressure.

Reddit shares fell more than 29% Friday after the company reported third-quarter results on Thursday. The company posted adjusted earnings of $1.40 per share, beating the consensus estimate of $1.33. Revenue rose 53% year over year to $895 million, above expectations of $874.9 million.

The company forecast fourth-quarter revenue of $1.00 billion to $1.03 billion, with the midpoint of $1.015 billion below Wall Street's estimate of $1.05 billion.

Search referral traffic declined meaningfully in the third quarter, with the downturn accelerating toward the end of the period, CEO Steve Huffman said in a shareholder letter. In October, search traffic fell by more than 1 million referrals per week on average.

Evercore ISI also removed their TAP Outperform Call on RDDT shares, saying that "structural search pressure, an uncertain logged-in transition, and unproven app-acquisition economics increase the risk that monetization gains will not fully offset audience weakness."

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