Reddit posted a strong second quarter but unsettled investors by noting that search engine referrals had become “choppy.”
Total revenue reached $805 million, a 61% increase from the prior year. Net income hit $253 million, up 183%. Both figures surpassed Wall Street estimates. The company also raised its guidance for the next quarter, projecting revenue between $860 million and $870 million with healthy earnings before taxes.
Normally, such optimism would lift shares. Instead, the stock fell more than 10% in after-hours trading.
The drop followed a warning from CEO Steve Huffman in a 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,” he wrote.
Artificial intelligence is clearly altering how people find information online. Investors now fear Reddit’s traffic could suffer.
Reddit signed a deal in 2024 to supply content to Google for AI training. Google has since deployed AI summaries that appear to be taking audience share away from the site. Reddit has indicated it is unsure whether to renew the partnership.
Another concern is whether the platform is growing in the right places. Global users are up, but daily active users in the United States saw a slight decline. The figure fell to 53.2 million from 53.5 million in the first quarter.
Analysts pressed on AI’s impact during the earnings call.
“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.,” one Wall Street analyst said.
“People are looking at the daily and saying, you know, the logged-out traffic is going to be under pressure because as search shifts to AI, you’re not going to get referrals, and that it’s going to be harder to get people to go from logged-out to logged-in, and that’s sort of symptomatic of what you’re seeing,” the analyst continued. He asked if there was a scenario where the company would not license data to Google and OpenAI next year.
Huffman argued that the human element of Reddit would keep it a destination for users. “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,” Huffman said.
He was less specific about Google. “Our relationship with them actually predates the formal kind of data licensing agreements,” he said. “I don’t think there’s a binary outcome … we will make sure that we’re maximizing the value for Reddit.”
What it means
Creators and users relying on search to find posts face a new hurdle. If search engines rely more on AI summaries, fewer people will click through to the original site. This reduces the visibility of communities and makes it harder for new users to discover content without logging in.
