Reddit shares slide 10% as AI search threatens traffic despite record quarter
The platform beat every earnings forecast but lost investor confidence after its CEO flagged "choppy" search referrals, exposing how AI-powered answers are beginning to erode the referral traffic that underpins the content economy.
Reddit posted its strongest quarter to date on Thursday, with revenue climbing 61% year-on-year to $805 million and net income surging 183% to $253 million. Both figures exceeded Wall Street consensus, and the company guided for $860 million to $870 million in third-quarter revenue. None of it mattered to the market. Shares fell more than 10% in after-hours trading.
The sell-off was triggered by a single passage in CEO Steve Huffman's letter to shareholders. "Search referrals were choppy in the quarter, and traffic was more volatile later in the quarter," he wrote, adding that the "bigger picture is unchanged." Investors read the first half of that sentence and ignored the second.
The concern is structural. Google, Reddit's largest single source of outside visitors, has been rolling out AI-generated summaries at the top of search results. Those summaries increasingly answer a user's question without requiring a click through to the original discussion thread. For a platform whose advertising model depends on drawing logged-out readers into its pages, that shift threatens the top of the funnel.
Reddit signed a content-licensing deal with Google in 2024, allowing the search giant to use its posts for AI training. The company has since signalled it may not renew the arrangement, though Huffman stopped short of confirming a break. "I don't think there's a binary outcome," he told analysts. "We will make sure that we're maximizing the value for Reddit."
The user numbers added a second layer of unease. Global daily active uniques grew, but in the United States they edged down from 53.5 million in the first quarter to 53.2 million. On the earnings call, one analyst put the point bluntly: "Your stock is down sharply because there is just a sense from investors that you have a user problem, especially in the U.S." The same analyst asked whether Reddit could envision a future in which it licenses no data to Google or OpenAI at all.
Huffman leaned on the community argument. "Reddit is communities and conversation. Communities are universal," he said, insisting the platform had content for every interest group and that the task was simply to surface it more effectively.
For European advertisers and media companies watching the results, the signal extends beyond one platform. Reddit's quarter illustrates a widening tension across the content economy: the same AI systems that platforms are paid to train are simultaneously reducing the need for users to visit those platforms. Revenue can grow on the back of existing momentum while the acquisition engine that sustains it quietly weakens.
The market's reaction suggests investors are no longer willing to pay a premium for strong trailing numbers if the forward traffic picture is uncertain. Whether Reddit can convert its logged-out readers into registered users before AI summaries make the referral click obsolete is now the question that will determine its valuation trajectory through 2027.
