Just days after warning investors about declining search traffic and a weaker-than-expected revenue forecast, Reddit is looking for more ways to make money from its existing users. On Tuesday, the company announced that it’s beginning to test ad placements in its search results pages, allowing advertisers to reach users as they search for products, recommendations, and other information on its platform.
“Ads in search may appear based on a range of factors, including contextual relevance to a user’s search query,” Reddit shared in its announcement about the new ad placements. “This is an initial test with a select group of eligible advertisers. During this test, we will evaluate and understand how users respond to these ads so we can refine the experience for users and advertisers over time.”
The company offered examples of what sort of ads might appear, suggesting that a search for “espresso station” might display ads for espresso machines, coffee, or mugs, while a search for “home office setup” could surface ads for things like monitors, desks and office chairs.
The ad test comes at a time when Reddit is reckoning with how AI has been changing the web’s landscape, and subsequently its reach.
Despite beating Wall Street’s estimates for revenue and earnings per share, the company’s stock dropped after it reported its third-quarter results last week, with fourth-quarter guidance that predicted sales of $1 billion to $1.03 billion, below expectations of $1.05 billion. This was tied to Reddit’s declining search traffic referrals resulting from Google’s move to an AI-powered search experience. AI search now sends less traffic to publishers’ websites, as features like AI Mode provide answers directly on Google’s Search Result pages, reducing clicks to other websites.
Reddit also said that its global daily active users were flat quarter-over-quarter in Q3, reaching 130.3 million, while U.S. daily active users dropped from 53.2 million in Q2 to 50.7 million in the quarter, and were down 2% year-over-year. The company noted that if the trend continues, daily active users could decline to a low double-digit percentage by the fourth quarter.
This leaves the company needing to earn more revenue from its existing users, which is where these new ads come in. The ads could prove to be more valuable to Reddit after it makes its planned shift to a logged-in experience, which was also announced during earnings. The company said it will make the transition gradually, initially in markets outside the U.S.
The decision to limit its content to logged-in users serves multiple purposes — it protects Reddit’s site from unauthorized AI scraping, and it increases its value to advertisers. Logged-in users are worth more to advertisers because they provide additional signals about their interests and behavior, allowing for better-targeted, more profitable ads.
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