Reddit reported strong second-quarter financial results, but an investor letter warning that search-engine referrals had become “choppy” rattled markets.
- Total revenue for the quarter was $805 million, an increase of 61% year-over-year.
- Net income was $253 million, up 183% compared with the year-ago quarter.
Those figures beat Wall Street expectations. The company also provided guidance for the next quarter, forecasting $860–$870 million in revenue and healthy pre-tax earnings, which exceeded analysts’ projections.
Despite the upbeat results and guidance, Reddit’s stock fell by more than 10% in after-hours trading. The drop was likely triggered by CEO Steve Huffman’s cautionary note in a separate 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 are concerned because AI is reshaping the search landscape, and they fear Reddit’s referral traffic could decline. In 2024, Reddit signed a contract to provide its content to Google for AI training. However, Google’s deployment of AI-generated summaries appears to be diverting some audience share from Reddit, and the company has indicated it is uncertain whether it will renew the partnership with the search giant.
Another point of debate is where user growth is occurring. While Reddit’s global user numbers rose, U.S. daily active unique users saw a slight decrease, from 53.5 million in Q1 to 53.2 million in Q2.
During the Thursday earnings call, some analysts pressed aggressively on AI’s impact. One Wall Street analyst said: “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 analyst continued that logged-out traffic could face pressure as search shifts to AI, reducing referrals and making it harder to convert logged-out visitors to logged-in users, and asked: “Do you see any world where you’re not licensing data to Google and OpenAI next year?”
Huffman argued that the human element of Reddit—its communities and conversations—will continue to attract 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,” he said.
On the Google partnership he was less definitive: “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.”
In sum, Reddit’s financial performance shows strong revenue and profit growth, but investor concern about AI-altered search referrals and subtle shifts in U.S. engagement introduced volatility into the stock following the earnings release.
