- Reddit has climbed to the top of Google results following a series of updates from the search giant.
- Reddit, which went public in March, needs to convince a growing number of these visitors to sign up for official accounts, as so-called logged-in users generate significantly higher advertising revenue.
- Reddit shares have fallen 26% since their peak last month.
For nearly a decade, Tom Wahlin’s popular travel gear website Pack Hacker has been ranked at the top of Google search results by publishing thoroughly researched product reviews.
But this year, something changed, as Wahlin noticed that his company’s reviews often ended up behind a series of Reddit links. A few weeks ago, for example, Wahlin discovered that when searching for the Aer Travel Pack 3, the review of Pack Hacker’s premium backpack was no longer at the top of Google results, something it had done for “a very, very long time,” he said.
The Reddit links that preceded his site all directed users to various forums where users were discussing the popular travel backpack. In a special twist of fate, the top Reddit post included several comments on Pack Hacker’s YouTube video review of the bag.
“It’s funny because we’re mentioned in this Reddit post,” Wahlin said. “Pack Hacker is mentioned a few times, but we’re still below the Reddit score.”
Reddit’s rise in search rankings is the result of a series of updates from Google last year that promoted “authentic” content from online forums. With Reddit outperforming other forum sites, the 19-year-old company was likely the biggest beneficiary of Google’s update, said Lily Ray, vice president of search engine optimization and research at marketing agency Amsive.
Amsive found that Reddit ranked fifth among U.S. websites in terms of visibility in Google’s organic search results in July, up from 68th a year ago.
“I think the rate of growth that Reddit has experienced is quite unusual for our industry,” Ray said.
The challenge for Reddit, which went public five months ago, is making money from people who land on the company’s site after a random search query. Reddit calls them “unlogged-in users,” and by some industry estimates, they generate only about a third of the revenue of logged-in users.
As Reddit explained in its financial filings, “unsubscribed users typically demonstrate less engagement and spend less time on our platform than users logged in with a registered account.” To boost the company’s reputation on Wall Street, it’s critical that a larger percentage of these users log in to Reddit and even download the app.
In Reddit’s second-quarter earnings report last week, the company said its user base grew 51% to 91.2 million in the second quarter, outpacing ad revenue growth of 41%. In the fourth quarter, the number of non-logged-in users surpassed that of logged-in users, and the gap has widened since then. Logged-in users grew 31% to 42 million in the second quarter, while non-logged-in users grew much more sharply, up 74% to 49.2 million.
Although results for the period through June beat estimates across the board and Reddit’s net loss narrowed significantly year-over-year, the stock fell following the report. Reddit shares have fallen 26% since their mid-July peak and are up just 8% since their IPO in March.
Reddit’s revenue, at least for now, consists almost entirely of digital ads. The company recently signed data licensing deals with Google and OpenAI for training their large language models that are fueling the generative artificial intelligence boom. Reddit’s “other revenue” category, which includes data licensing, rose 691% year over year to $28.1 million in the quarter, accounting for 10% of total revenue.
Aside from data licensing, Google is the biggest catalyst for Reddit’s growth.
Alan Gould, managing director of Loop Capital, said Google accounts for “the vast majority of unsubscribed users,” making the search giant’s rising traffic a key reason Reddit is generating less money per user in the U.S.
“First-class problem”
Reddit’s user base in the US grew 59 percent year-over-year in the second quarter. However, average revenue per user (ARPU) fell five percent, from $5.21 to $4.94. Daniel Konstantinovic, an analyst at eMarketer, noted that opted-out users are not required to provide personal information such as email addresses. This information could help Reddit “better track users, deliver ads and target them with specific ads.”
“An advertiser will look at that and say, OK, it doesn’t look like I can reach these people in any more effective way,” Konstantinovic said.
Benjamin Black, an analyst at Deutsche Bank, said that “a lot of Reddit’s monetization actually happens in the home feed,” which is why the company needs a growing number of logged-out users to create accounts.
“Their opted-out users just came in droves and found value on the platform,” said Black, who recommends buying Reddit stock. “Over time, those will become opted-in users and become more valuable on the platform.”
By 2025, logged-in Reddit users could earn an ARPU of $17.60, compared to $5.90 for non-logged-in users, Black said, based on the company’s estimates. Reddit does not disclose these figures.
Reddit chief operating officer Jen Wong told analysts on the company’s second-quarter earnings call that the company is putting revenue and user growth above ARPU. She said the company is in the “fortunate position of having really strong revenue and user growth, with a little more users, and that’s why ARPU is down.”
“It could be a first-class problem that we have in calculating ARPU,” Wong said.
Reddit CEO Steve Huffman said on the company’s quarterly earnings call that the company is increasing its user base and customer loyalty in part due to new features and investments in artificial intelligence.
“They come and download our app,” Huffman said. And then when they come to the website, all the company’s work “around relevance and product quality comes into play to retain those users,” he said.
Reddit CEO Steve Huffman stands on the floor of the New York Stock Exchange (NYSE) and rings a bell that sets the stock price at $47 during its initial public offering (IPO) on March 21, 2024 in New York City.
Huffman told CNBC that it’s easier than ever for new users to create accounts because the process is streamlined and users are required to provide either an email address or phone number or sign up using a Google or Apple account.
“Registration rates have increased significantly because we lose far fewer users when they sign up,” Huffman said.
Reddit’s improved personalization features also mean that new users will be recommended more Reddit posts and communities, or subreddits, that are related to their searches, so they’ll stay engaged longer, Huffman said. He added that the company has improved the site’s overall speed to make it more pleasant for new users.
“User retention is up, which is driving an increase in logged-in users, which we’re really excited about,” Huffman said. He said the 31% year-over-year increase in logged-in users in the second quarter was the highest in years.
Still, some experts doubt that logged out users choose to stay there after coming across a particular Reddit post.
“I just don’t see a clear way to get someone who goes to Reddit through Google to log in and spend more time there than just what they’re specifically looking for,” Konstantinovic said. “If you look at the changes that Google has made, it’s all about providing the answer or the desired result as quickly as possible. So it doesn’t make sense for the user to then go to Reddit and spend even more time there on things that aren’t specific to their query.”
Google risk
Reddit also faces the risk that any company faces when it depends on Google for traffic, as its algorithm can change at any time. Reddit acknowledges in its filings that “changes in internet search engine algorithms and dynamics could adversely affect our website traffic and, ultimately, our business, operating results, financial condition, and prospects.”
This is a problem many websites have faced for years, from recipe sites to online coupon providers. And it was an algorithm tweak that pushed Pack Hacker’s reviews into the Reddit content earlier this year.
“Some brands survive and some die,” says Wahlin, who sold Pack Hacker to outdoor and fitness publisher AllGear Digital in January but still oversees editorial operations. “Things are constantly changing.”
Wahlin said his traffic from Google hasn’t completely collapsed and he’s long been preparing for a potential algorithm change by diversifying his business with YouTube channels, a paid membership program and brand awareness that makes Pack Hacker a landing page.
Currently, Reddit benefits from the Google algorithm, but that may change.
“We definitely talk about it in the SEO space – like buying stocks, buying Reddit stocks – because they just keep going up on Google,” said Ray, the SEO expert. “But it’s just impossible to know how long that will last and if it will continue.”
Google declined to comment, pointing to previous blog posts in which it explained that it favors content that includes more human voices and perspectives.
According to Huffman, Reddit has always been able to grow its user base “without SEO, because without content in the index, you don’t get search traffic.” According to Huffman, the company built its content “exclusively through word of mouth” during its first decade.
Huffman described Reddit’s direct traffic as “really robust,” regardless of what Google does.
“It’s different from other publishers or content platforms where the content tends to be commoditized,” he said. “Reddit is really unique, and that’s a real strength.”
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