Reddit beats Q2 targets but stock drops 10% on AI search fears
Reddit posted a strong second quarter: total revenue reached $805 million, up 61% from the same quarter a year earlier, and net income came in at $253 million, up 183% year over year. Both figures beat Wall Street's expectations. The company also guided next quarter's revenue to $860 million to $870 million with healthy earnings before taxes, ahead of what analysts had expected. Despite the beat and the upbeat guidance, Reddit's stock fell more than 10% in after-hours trading.
The trigger was a line in CEO Steve Huffman's letter to shareholders: "Search referrals were choppy in the quarter, and traffic was more volatile later in the quarter, but the bigger picture is unchanged: the commercial business is strong." Investors read the warning as a sign that AI-powered search is starting to cut into the traffic Reddit gets from search engines like Google.
The concern has a specific history. In 2024, Reddit signed a deal to license its content to Google for AI training. Since then, Google's AI-generated search summaries appear to be pulling audience share away from Reddit rather than sending users to the site, and Reddit has signaled it is not sure whether it will renew the Google partnership when it comes up again.
There is also a geographic split in the user numbers. Reddit's global user base grew, but U.S. daily active uniques slipped slightly, to 53.2 million from 53.5 million in the first quarter.
On Thursday's earnings call, analysts pushed Huffman directly on the issue. One Wall Street analyst told him: "I don't want to belabor this point, but your stock is down sharply because there is just a sense from investors that you have a, I don't want to, to be blunt, a user problem, especially in the U.S." The same analyst argued that as search shifts toward AI, logged-out traffic will come under pressure because it won't get the same referrals, making it harder to convert logged-out visitors into logged-in users. He then asked whether Reddit might stop licensing data to Google and OpenAI altogether.
Huffman did not give a yes-or-no answer on the licensing question. On the broader user concern, he argued the human element of Reddit is what keeps it valuable: "Reddit is communities and conversation. Communities are universal, and so we think we have in the U.S. content for everyone, and it's a matter of revealing that. And we're making progress towards that end." On the Google relationship specifically, he was less direct: "Our relationship with them actually predates the formal kind of data licensing agreements," he said, adding, "I don't think there's a binary outcome ... we will make sure that we're maximizing the value for Reddit."
Key facts
- Reddit's Q2 revenue hit $805 million, up 61% year over year; net income was $253 million, up 183%, both beating Wall Street estimates
- Next-quarter revenue guidance of $860 million to $870 million also topped expectations, yet the stock fell more than 10% in after-hours trading
- CEO Steve Huffman told shareholders that search-referral traffic was 'choppy' during the quarter, fueling investor fears about AI search cutting into Reddit's traffic
- U.S. daily active uniques slipped slightly, to 53.2 million from 53.5 million in Q1, even as global user numbers grew
- Reddit has signaled uncertainty over renewing its 2024 data-licensing deal with Google, whose AI search summaries appear to be pulling audience away from the site
Why it matters
This is a rare case of a company beating every headline number and still getting punished by the market, because investors are pricing in a structural risk rather than a quarterly miss: that AI search summaries are replacing the referral clicks Reddit's business has relied on. It is one of the clearest public signals yet that AI-powered search is starting to bite into the traffic economics of a major consumer platform.
Who it affects
It affects Reddit directly, its shareholders who sent the stock down double digits despite strong results, and the search giants, chiefly Google, which licenses Reddit's content for AI training and summaries (analysts also pressed Huffman on a similar arrangement with OpenAI). It also matters to any publisher or platform that depends on search-engine referral traffic, since Reddit's experience is being read by investors as an early indicator for the wider industry.
How to use it
For anyone tracking AI's effect on the open web, Reddit's earnings call is a concrete data point rather than speculation: a named metric (U.S. daily active uniques), a named cause (choppy search referrals), and a company on record saying it may not renew a major AI data-licensing deal. It is worth watching Reddit's next couple of quarters, and whether it renews or drops the Google licensing arrangement, as a leading indicator for how AI search reshapes referral traffic more broadly.
How solid is it
The revenue, profit and guidance figures come directly from Reddit's own earnings report and are not in dispute. The link between AI search and the traffic decline is Reddit's own characterization, echoed and pressed further by Wall Street analysts on the call, but the article does not cite independent data isolating AI search as the specific cause of the U.S. user dip; it is the market's and the company's interpretation of the pattern, not an audited causal finding.
Risks and caveats
Huffman gave no firm answer on whether Reddit will renew its Google data-licensing deal, and the article does not say whether Reddit currently licenses data to OpenAI at all, only that an analyst raised the question. The U.S. user decline is described as 'very slight' (53.2 million versus 53.5 million), and global user numbers are still growing, so the AI-driven traffic threat, while clearly worrying investors, has not yet shown up as an overall decline in Reddit's user base.
“Search referrals were choppy in the quarter, and traffic was more volatile later in the quarter, but the bigger picture is unchanged: the commercial business is strong.”
— Steve Huffman, Reddit CEO, in a letter to shareholders