Reddit tests ads in search results as traffic declines and growth concerns mount

Reddit will begin testing advertisements on its search results pages, the company announced Tuesday, a move aimed at squeezing more revenue from the users it already has. The test places sponsored posts alongside organic results so advertisers can reach people looking for products, recommendations and other information. Reddit said eligibility is limited to a select group of advertisers for now.

The company said ad placement will depend on several factors, including how closely an ad matches the context of a user's query. Reddit described the effort as an initial trial and said it will study how users react in order to refine the format for both users and advertisers. As an example, Reddit said a search for an espresso station could show ads for espresso machines, coffee or mugs, while a search for a home office setup might turn up ads for monitors, desks and office chairs.

The test follows a difficult stretch for Reddit. Last week the company reported third-quarter results that beat Wall Street estimates for revenue and earnings per share, but its stock fell on fourth-quarter guidance projecting sales of $1 billion to $1.03 billion, short of the $1.05 billion expected. Reddit tied the soft outlook to declining search traffic referrals as Google's AI-powered search experience answers more queries directly on its results pages, reducing clicks to outside websites.

Reddit also reported that global daily active users were flat quarter-over-quarter at 130.3 million in the third quarter. U.S. daily active users fell from 53.2 million in the second quarter to 50.7 million, down 2% year-over-year, and the company cautioned that daily active users could decline by a low double-digit percentage in the fourth quarter if the trend holds. That pressure leaves Reddit looking to earn more from existing users, which is where the search ads come in.

Reddit has also said it plans to shift to a logged-in experience, announced during earnings, with a gradual rollout that starts in markets outside the U.S. The company said the change would shield its site from unauthorized AI scraping and make it more valuable to advertisers, since logged-in users supply additional signals about their interests and behavior that support more targeted advertising.

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