Reddit posted a strong second quarter, beating Wall Street expectations with $805 million in revenue—a 61% year-over-year jump—and $253 million in net income. Despite these robust financials and an optimistic outlook for the next quarter, Reddit shares plummeted over 10% in after-hours trading as CEO Steve Huffman warned in an investor letter that search engine traffic has become increasingly “choppy.”
Financial Growth vs. Market Anxiety
The company’s performance was undeniably strong, with revenue growth significantly outpacing analyst projections. Reddit further signaled confidence by forecasting revenue between $860 million and $870 million for the upcoming quarter, alongside healthy earnings before taxes. However, market sentiment shifted sharply following the disclosure regarding traffic volatility. While Huffman maintained that the “commercial business is strong,” the broader narrative surrounding AI’s disruption of search engines has clearly spooked investors.
The AI Search Dilemma
The core of investor concern lies in how AI-driven search results are reshaping the digital landscape. In 2024, Reddit signed a contract to license its data to Google for AI training purposes. Ironically, the deployment of Google’s AI summaries may be cannibalizing Reddit’s organic traffic. As a result, the site has signaled uncertainty regarding the renewal of its high-profile partnership with the search giant.
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U.S. User Growth Concerns
Beyond search traffic, analysts expressed anxiety over domestic growth. While global user numbers are trending upward, Reddit experienced a slight decline in U.S. daily active unique users, dropping to 53.2 million from 53.5 million in the first quarter. During Thursday’s earnings call, one analyst bluntly characterized the situation as a “user problem,” suggesting that AI-driven search shifts could make it increasingly difficult for the platform to convert logged-out visitors into active, logged-in participants.
Huffman’s Strategy for Retention
Addressing these concerns, CEO Steve Huffman emphasized that Reddit’s unique value proposition—human-centric community and conversation—remains its primary defense against AI automation. “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,” Huffman noted.
Regarding the future of data licensing, Huffman remained non-committal. He highlighted that Reddit’s relationship with Google predates formal licensing agreements and stressed that the company’s priority is to maximize value. “I don’t think there’s a binary outcome,” he stated, leaving the door open for a strategic shift as the platform navigates the evolving intersection of search, AI, and user engagement.
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