Reddit reports a solid quarter but shows signs of AI’s impact

Reddit reported a strong second quarter but spooked investors by mentioning in an investor letter that traffic from search engines had grown “choppy.”

The company’s total revenue of $805 million jumped 61% compared to the year-ago quarter while net income was $253 million, up 183%. These beat Wall Street’s expectations. Plus, the company said it expects to hit revenue of $860 million to $870 million with healthy earnings before taxes next quarter as well, which beat expected guidance.

Normally, telling investors that they can expect even better results to come would cause a stock to rise. But the stock slid over 10% in after-hours trading.

The culprit was likely CEO Steve Huffman’s warning in that 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,” he wrote.

AI is clearly changing the search engine landscape — and investors seem to fear that Reddit’s traffic may suffer.

In 2024, Reddit signed a contract to provide its content to Google for the purposes of AI training. However, Google’s deployment of AI summaries appears to be peeling away audience share from Reddit, and the site has signaled it’s not sure whether it will renew the partnership with the search giant.

Another sticking point has been whether Reddit’s audience is growing in the right places or not. Reddit’s global users are up, but the platform saw U.S. users, in terms of daily active uniques, endure a very slight decline — 53.2 million from 53.5 million in Q1.

During Thursday’s earnings call, some analysts aggressively questioned AI’s impact on Reddit’s audience.

“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, asking, “Do you see any world where you’re not licensing data to Google and OpenAI next year?”

Huffman said that he felt that the human aspect of Reddit would continue to make 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.

When it comes to Google, Huffman was vaguer. “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.”

When you purchase through links in our articles, we may earn a small commission . This doesn’t affect our editorial independence.

Scale faster. Grow your portfolio. Gain practical expertise. No matter your goal, Disrupt can empower you. Save up to $330 toda y!

Claude Opus 5 became downright ruthless when tasked with running a vending machine

DoorDash is building its own drone delivery business

Sam Altman is ready to decelerate

Data centers may face temporary power cuts to prevent blackouts on largest US grid

PSA: Your Claude shared chats and Artifacts may have ended up on Google

Kalshi demands Netflix take down trailer for ‘Prediction Games’ documentary

Librarians are hosting viral ‘Avoiding AI’ workshops for people who are fed up with Big Tech