Revenue climbed 61% year-over-year, but shares fell as investors questioned the impact of AI on search-driven traffic. Licensing deals and user retention strategies are now under scrutiny.
Reddit’s latest earnings report delivered impressive revenue growth, but the company’s stock took a sharp hit as investors focused on the risks AI poses to search referral traffic-a critical source of new users and ad revenue for the platform. Reddit reported a 61% year-over-year increase in total revenue to $805 million for the second quarter, with advertising revenue up 64% to $762 million. Yet, shares dropped nearly 13% in after-hours trading as Wall Street questioned whether AI-powered search features, such as Google AI Overviews, are diverting potential visitors before they reach Reddit’s site.
CEO Steve Huffman told investors that search referral traffic was volatile during the quarter, especially later in the period. He emphasized that Reddit’s broader growth strategy remains unchanged, focusing on product investment and converting its 500 million weekly users into 1 billion daily users. Huffman said the company is prioritizing building Reddit as a daily destination rather than relying on transient, drive-by traffic from search engines.
However, the uncertainty around search traffic is not unique to Reddit. If a major platform like Reddit is experiencing volatility, smaller publishers may face even greater challenges. This echoes concerns raised in other parts of the digital publishing ecosystem, such as the recent report on declining ad inventory and its impact on publisher economics.
Reddit’s position is further complicated by its business relationships with AI companies. The company has licensing deals that allow firms like Google and OpenAI to use Reddit’s data to train AI models and improve natural language capabilities. During the earnings call, analysts pressed Huffman on whether Reddit would continue licensing its data to Google or OpenAI in the coming year, especially as reports surfaced that Reddit might not renew its estimated $60 million annual agreement with Google.
Huffman responded that Reddit’s relationship with Google is multifaceted and that the company is evaluating all options to maximize value. He noted that Reddit’s data is valuable not just for training AI models, but also for grounding AI-generated answers in real, up-to-date information. Huffman said the company is focused on improving user retention through updates to the new-user app experience, which he believes will drive growth regardless of fluctuations in external search traffic.
Reddit’s approach to licensing and traffic strategy is being closely watched by investors, as the company navigates the evolving landscape of AI-driven search and its implications for audience growth and monetization.
Founded in 2005, Reddit has grown into one of the largest online communities, reporting 500 million weekly users. The company went public in 2024 and has since pursued new revenue streams, including data licensing agreements with major AI firms. Its advertising business remains the primary driver of revenue, but the platform’s ability to adapt to changes in search traffic and AI integration will be critical for future growth.
