Reddit's success may be inextricably tied to Google Search
Reddit has grown since going public last year, but some analysts fear it may be too closely tied to Google.
Redburn Atlantic analysts warned Reddit's reliance on Google traffic and logged-out users may limit its long-term value.
Reddit's stock has been volatile, affected by Google's algorithm changes and rumors of a Google deal.
Reddit is growing quickly, but — like many media companies — it's struggling to separate itself from Google.
Wall Street analysts from Redburn Atlantic rated Reddit "sell" on March 17 after saying in a note that the company's "potential, breadth of appeal and thus value as a company are being overstated," according to Bloomberg.
James Cordwell and Joseph Barker, analysts for the firm, said that much of Reddit's growth over the past few years has been "misconstrued" because it came from logged-out users as the main driver, with many of those users coming from Google's algorithm, according to the outlet.
Reddit CEO Steve Huffman has repeatedly said that people are going to Google more with the intention of ending up on Reddit.
But the Redburn analysts say this trend could lead to more logged-out user growth than logged-in user growth.
Reddit's daily active users who are logged in to their accounts were up 27% last year, but the same metric was up by 70% for people who were logged out, BI previously reported.
"Accelerated user growth has been driven predominantly by logged-out users who arrive on the platform largely via Google Search," the Redburn analysts wrote. "These users are much less valuable to Reddit as they are typically just looking for an answer to a query and thus spend little time on the platform."
Cordwell and Barker added that there is "clear evidence" that the boost to traffic from Reddit's recent changes is "hitting a ceiling, with a risk that what Google giveth, it will taketh away," according to Bloomberg.
Redburn did not return requests for comment from Business Insider. A spokesperson for Reddit noted that the majority of analysts have maintained their "buy" rating for the company and that the experience for logged-in user has been driven by improvements to the platform.
Jen Wong, Reddit's COO, recently described the relationship with Google as "symbiotic."
"People are using Google to get to Reddit," she said at the Morgan Stanley Technology, Media, and Telecom Conference in March. "When I view it like this, I don't view it as existential; we have these two sources of traffic. It's not existential for us, but it is some chop that we managed through."
Reddit has seen tremendous growth over the past year since going public in March 2024, but its stock has seen some volatility in recent months. On February 12, Reddit's stock dropped more than 15% after Huffman said in an earnings call that a tweak to Google's algorithm caused "volatility" in site traffic.
He added that "traffic from search has recovered so far in Q1, and we've regained momentum. What happened wasn't unusual."
On March 17, Reddit's stock jumped again after Reuters published an article that it later retracted, which said Google and Reddit had entered a new partnership. Reuters said in an update that the post was based on outdated information.
Reddit users reacted to the post in r/stock, a community where users discuss stocks, market news, and finances.
"Wild. There was just like a 10% pump and it instantly dropped back down. Is Wall Street Bets on this stock or something?" one user wrote in a comment about the article.
Another user said in the comments they see many Google search results that use Reddit information. The user wrote that it is "insane how Google has basically sold out its Search function to operate as the Reddit search bar."
"Most of the time when you Google something now you're either shown a list of Reddit pages or given an AI overview that uses Reddit to write the answer," the user wrote.
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