Reddit Reports Strong Quarter but Investors Wary of AI Impact on Search Traffic
Reddit's Q2 revenue surged 61% to $805 million, yet its stock dropped over 10% after the CEO warned of 'choppy' search referrals due to AI-driven changes in search engines.
Reddit announced its second-quarter financial results, beating market expectations. Total revenue reached $805 million, a 61% increase year-over-year, while net income jumped 183% to $253 million. The company also forecast next quarter's revenue between $860 million and $870 million.
Despite the strong performance, Reddit's shares fell more than 10% in after-hours trading. The decline followed CEO Steve Huffman's investor letter, in which he described search referrals as 'choppy' and noted that traffic became more volatile later in the quarter. Huffman acknowledged that artificial intelligence is reshaping the search landscape, raising investor fears about Reddit's audience growth.
A key concern is Google's deployment of AI summaries, which appears to be siphoning traffic away from Reddit. In 2024, Reddit signed a contract to provide content for Google's AI training, but now it is uncertain about renewing the partnership. Reddit's U.S. daily active users edged down to 53.2 million from 53.5 million in the first quarter.
During the earnings call, analysts pressed Huffman on AI's impact and whether Reddit would continue licensing data to Google and OpenAI. Huffman responded that Reddit's communities remain a unique draw and that the relationship with Google predates formal licensing agreements, adding that the company will focus on maximizing value for Reddit.
