Reddit’s growing reliance on Google traffic has Wall Street anxious | Wilnesh News

For nearly a decade, Tom Wahlin’s popular travel gear website Pack Hacker has been Google’s Search results by posting well-researched product reviews.

But that changed this year, with Wallin noticing that his company’s reviews were regularly lower than a series Reddit Link. For example, a few weeks ago, Wahlin discovered that when he searched for the Aer Travel Pack 3, Pack Hacker reviews for the premium backpack were no longer leading Google results for “a very, very long time,” he said.

Previous Reddit links to his site have directed users to various forums where users discuss popular travel backpacks. In a special twist of fate, a popular Reddit post included some comments about Pack Hacker’s YouTube video review of the pack.

“It’s funny because we were mentioned in the Reddit post,” Wallin said. “Pack Hacker was mentioned multiple times, but we’re still below the Reddit results.”

Reddit’s rise in search rankings is the result of a range of factors renew Google’s approach dates back to last year, when it increased “authentic” content in online forums. With Reddit dwarfing other forum sites, the 19-year-old company may be the biggest beneficiary of Google’s update, said Lily Ray, vice president of search engine optimization and research at Amsive marketing agency.

amsif established As of July, Reddit ranks fifth among U.S. websites in terms of visibility in Google’s U.S. organic search results, up from 68th^th a year ago.

“I think the rate at which Reddit is growing is quite unusual for our industry,” Ray said.

The challenge for Reddit, which first went public five months ago, is making money from users who land on the company’s site after performing random queries. Reddit calls them “non-logged-in users,” and according to some industry estimates, their profitability is only about one-third that of logged-in users.

As Reddit said in its article financial reporting“Users who log out are typically less engaged and spend less time on our platform than users who are logged in to register an account.” Getting more people to sign up for Reddit, or even download the app, could be a boost for the company Its reputation on Wall Street is crucial.

Q2 on Reddit earnings report Last week, the company said its user base grew 51% to 91.2 million in the second quarter, outpacing a 41% increase in advertising revenue. In the fourth quarter, the number of logged-out users exceeded the number of logged-in users, and the gap has widened since then. The number of logged-in users increased by 31% in the second quarter, reaching 42 million, while the growth rate of logged-out users was even stronger, reaching 49.2 million, an increase of 74%.

Although results through June beat expectations across the board and Reddit’s net loss narrowed significantly from a year earlier, the stock fell after the report. Reddit shares have fallen 26% since peaking in mid-July and are up just 8% since its March IPO.

Reddit’s business comes almost entirely from digital advertising, at least for now. The company recently signed data licensing agreements with Google and OpenAI for training its large-scale language models, which are driving the boom in generative artificial intelligence. Reddit’s “other revenue” category, which includes data licensing, surged 691% year over year to $28.1 million in the quarter, accounting for 10% of total sales.

Besides data licensing, Google has been Reddit’s biggest catalyst for growth.

Alan Gould, managing director at Loop Capital, said Google accounts for “the vast majority of logged-out users.” By extension, the search giant’s traffic surge is a big reason why Reddit is making less money per user in the U.S.

Jen Wong, Head of Operations at Reddit Tell Analysts said on the second-quarter earnings call that the company emphasized revenue and user growth rather than ARPU. She said the company is in a “fortunate position to have very strong revenue and user growth with a slightly higher number of users, which is why ARPU is down.”

“This is probably the first-class problem we’ve encountered in ARPU mathematics,” Wong said.

Reddit CEO Steve Huffman said on an earnings call that the company is growing users and retention, in part due to new features and investments in artificial intelligence.

“They’re going to come, they’re going to download our app,” Hoffman said. When they visit the site, he said, “all the work the company does around relevance and product quality comes into play to retain those users.”

Hoffman told CNBC that it’s easier than ever for new users to create an account because of a streamlined process that requires users to submit an email address or phone number, or log in through a Google or Apple account.

“Sign-up rates are up significantly because we’re losing far fewer users when they sign up,” Huffman said.

Huffman said Reddit’s improved personalization also means new users will be recommended more Reddit posts and communities or subreddits that are relevant to their search queries, keeping them engaged for longer. He added that the company has improved the overall speed of the site to provide a better experience for new users.

“The user retention rate has improved, which has led to the growth in the number of logins, which is something we are very happy about,” said Hoffman. He said that the number of logged-in users increased by 31% year-on-year in the second quarter, which was the highest level in many years.

Still, some experts are skeptical that logged-out users will choose to stick around after landing on a specific Reddit thread.

“I just don’t see a clear path for people who come to Reddit through Google to log in and spend more time outside of the content they’re specifically looking for,” Konstantinovich said. “If you look at Google The changes you’ve made, you’ll find it’s all about getting the answer or desired result out as quickly as possible, so there’s no point in users going to Reddit and spending more time on it with content that’s not specific to their query.

Reddit also faces the same risks that any company faces when relying on Google for traffic, since the algorithm can change at any time. Reddit acknowledged in the filing that “changes in Internet search engine algorithms and dynamics may negatively impact traffic to our site and ultimately our business, results of operations, financial condition and prospects.”

this is a From recipe sites to online coupon providers, many websites have faced this problem for years. It was an algorithm tweak that caused Pack Hacker comments to be lower than Reddit content earlier this year.

“Some brands survive, some brands die,” Wallin said. Sell Pack Hacker joined outdoor and fitness publisher AllGear Digital in January but remains in charge of editorial operations. “Things can always change.”

Wahlin said his traffic from Google hasn’t completely declined, and he has long been preparing for potential changes in the algorithm, diversifying his business with a YouTube channel, a paid membership program and the brand awareness that makes Pack Hacker a destination site. change.

Reddit is currently a beneficiary of Google’s algorithm, but that may change.

“We’re definitely talking about it in the SEO world – like buying stocks, buying Reddit shares – because their rankings on Google keep going up,” said SEO expert Ray. “But it’s impossible to know how long this will last and whether it will continue.”

Google declined to comment. The company pointed out Previous blog posts About how to prioritize content with more human voices and perspectives.

Huffman said Reddit has been “growing its user base without SEO because you can’t get search traffic unless you have content in the index.” Hoffman said the company spent its first decade or so building content “completely through word of mouth.”

Hoffman described Reddit’s direct traffic as “really resilient” regardless of what Google is doing.

“This is different from other publishers or content platforms, where content is more commoditized,” he said. “Reddit is really unique, so that’s a real advantage.”