Reddit Reports Strong Q2 With $805M Revenue But Stock Drops 10% On AI Search Traffic Concerns

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."

Reddit expects revenue above estimates as AI tools attract advertisers

July 30 (Reuters) - Reddit (RDDT.N), opens new tab forecast third-quarter revenue above Wall Street estimates on Thursday, signaling its strategy to draw marketers by offering AI-powered advertising tools is paying off. Shares of the company fell 6% in volatile extended trading after the company reported slowing growth in both second-quarter revenue and its U.S. daily active unique visitors (DAUq). The company's ad tools are designed to enhance campaign performance by offering a library of ⁠successful ads, generating Reddit-specific ad copy, tracking visitor actions after ad exposure and enabling interest and community-based targeting within subreddit discussions. Reddit operates in a highly competitive social media market, where bigger rival Meta (META.O), opens new tab through its Threads communities hub and new Forum app for Facebook Groups users appears to be directly targeting Reddit's core community model. "The company's advertiser growth in the second quarter was 70% year-over-year. So, we continue to onboard a lot more new advertisers onto Reddit," COO Jen Wong told Reuters. She added the growth was particularly strong among mid-market and small- and medium-sized businesses ⁠and international advertisers. Reddit forecast third-quarter revenue of $860 million to $870 million, above LSEG-compiled analysts' average estimate of $829.1 million. Second-quarter revenue rose 61% to $805 million, beating estimates of $730.4 million. But the growth in its U.S. DAUq slowed in the second quarter sequentially, even as global DAUq rose 18% from a year earlier to 130.3 ⁠million and slightly higher than prior quarter growth. "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," ⁠co-founder and CEO Steve Huffman said in the shareholders' letter. Wong said "SEO headwinds" caused by changes in search algorithms "more than offset" the company's efforts in terms of user acquisition in the quarter. Still, ⁠product improvements are helping convert lower-engagement visitors from search engines into loyal app users, she said. Reddit expects quarterly adjusted earnings before interest, taxes, depreciation and amortization of $385 million to $395 million, above estimates of $369 million. Reporting by Jaspreet Singh in Bengaluru; Editing by Sriraj Kalluvila Our Standards: The Thomson Reuters Trust Principles., opens new tab * Suggested Topics: * Media & Telecom Jaspreet Singh Thomson Reuters Jaspreet Singh joined Reuters as a technology reporter in April 2023. He covers a raft of developments including deals, layoffs, management changes, quarterly earnings and the latest in the world of AI. He is interested in stories that bring to light any corporate misconduct, abuse of power and innovation. Jaspreet graduated from Panjab University with a degree in Journalism. If you have any sensitive information or a tip to share, contact him for an off-the-record introduction chat. He will explain what it means to speak with a reporter on background.

Reddit flags AI search impact despite strong quarter

Reddit reported second quarter revenue and profit above Wall Street expectations, but its shares fell more than 10% after hours after the company warned that search-driven traffic had turned "choppy." Total revenue rose 61% from a year earlier to $805 million, while net income increased 183% to $253 million, according to the company. Reddit also forecast third quarter revenue of $860 million to $870 million and said it expected healthy earnings before taxes. Chief Executive Steve Huffman told shareholders in a letter that search referrals had become less predictable during the period. "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. The company's comments added to investor concern that changes in online search, driven by artificial intelligence features, could weigh on Reddit's traffic. Reddit signed a contract in 2024 to provide content to Google for AI training, but the company has indicated it is uncertain whether it will renew that partnership. Questions also centered on where Reddit's audience is growing. Global users increased, but U.S. daily active uniques slipped to 53.2 million from 53.5 million in the first quarter. Analysts pressed the company on that trend during Thursday's earnings call. One Wall Street analyst said investors believed Reddit had "a user problem, especially in the U.S.," and said logged-out traffic could face pressure as search shifts toward AI-generated answers. The same analyst asked whether Reddit could stop licensing data to Google and OpenAI next year. Huffman said Reddit's human-driven communities would continue to attract 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. On Google, Huffman gave no direct answer on the future of the arrangement. "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."

Reddit Stock Is Falling Friday: What's Going On? - Reddit (NYSE:RDDT)

Reddit CEO Declares 'People Don't Want AI Summaries -- They Want Reddit' CEO Steve Huffman said search referrals were "choppy" during the second quarter and became more volatile later in the period as Google's AI-powered search continues to evolve. He said Reddit is prioritizing direct engagement through its app over search-driven traffic, adding that the company is "not building for drive-by traffic" but rather "a daily destination" and that direct app users are significantly more valuable than search referrals. Earnings Snapshot Reddit reported second-quarter earnings of $1.25 per share, beating the analyst consensus estimate of 95 cents, according to Benzinga Pro. Revenue increased 61% year over year to $804.9 million, topping the Street estimate of $730.3 million. The quarter marked Reddit's eighth consecutive period of revenue growth exceeding 60%. Management said advertising demand remained strong across sales channels, particularly among large enterprise customers. Advertising revenue climbed 64% year over year to $762 million, while other revenue increased 24% to $43 million. Active advertisers rose more than 70% from a year earlier, led by strength in the retail and travel categories. Ads API revenue grew more than 40% sequentially, while more than half of revenue came from credit-line customer relationships. Revenue from dynamic product ads and app install campaigns more than doubled from a year earlier. Scaled channel revenue from mid-market and small- and medium-sized business advertisers also doubled. Gross margin expanded 50 basis points year over year to 91.3%, despite higher artificial intelligence and machine learning computing costs. Adjusted EBITDA margin reached 43%, with third-quarter guidance implying a midpoint margin of 45%. Operating cash flow more than doubled to $262 million, while trailing 12-month operating cash flow surpassed $1 billion for the first time. Capital expenditures totaled $1 million, or less than 0.2% of revenue. Reddit ended the quarter with $2.8 billion in cash, cash equivalents and marketable securities. The company repurchased approximately 1.5 million shares during the quarter for $235 million, leaving about $760 million available under its current share repurchase authorization. Key Metrics Daily Active Uniques (DAUq) exceeded 130 million during the quarter, while weekly reach topped 500 million users. New app user retention improved 50% year over year, reflecting stronger onboarding and engagement. Reddit reiterated its long-term goal of reaching 1 billion global daily users and 100 million daily users in the U.S. Average revenue per unique user (ARPU) increased 36% year over year to $6.18. U.S. revenue grew 56%, while international revenue jumped 84%. Video advertising became Reddit's fastest-growing upper-funnel advertising objective, with revenue more than doubling from a year earlier. Shopping-related conversations increased 40% year over year, supporting the rollout of shopping listing ads in alpha testing. The company's Shopify integration also became generally available, with more than 500 advertiser accounts integrated. Outlook And Management Commentary Reddit expects third-quarter revenue of $860 million to $870 million, above the analyst consensus estimate of $829 million. The guidance implies 47% to 49% year-over-year growth. The company forecast adjusted EBITDA of $385 million to $395 million, representing 63% to 67% year-over-year growth. Adjusted EBITDA margin is expected to be about 45% at the midpoint. Reddit also lowered its full-year stock-based compensation outlook to the low-to-mid teens as a percentage of revenue, compared with its previous expectation for the high-teens range. Third-quarter stock-based compensation and related taxes are expected to total $140 million to $155 million. Huffman said the company remains confident in achieving its long-term milestones, although execution will take time. He added that outcomes for the data licensing business remain broad, with growing demand for Reddit's data across an expanding range of artificial intelligence and other use cases. Huffman said Reddit is positioned to benefit as artificial intelligence changes how people discover information, arguing that users increasingly value authentic human conversations over AI-generated summaries. "AI compresses the internet into summaries. Reddit delivers the opposite: deep discussions, passionate debates, and lived experiences," Huffman said. "People don't want a summary of Reddit, they want Reddit," he added, describing the platform as "the antidote to an automated web" where consumers seek real opinions, firsthand experiences and trusted community discussions. RDDT Price Action: Reddit shares were down 9.85% at $160.50 during premarket trading on Friday, according to Benzinga Pro data. Image via Shutterstock Market News and Data brought to you by Benzinga APIs To add Benzinga News as your preferred source on Google, click here.

Reddit is considering breaking with Google because of AI

News Reddit is considering breaking with Google because of AI AI search summaries are cutting traffic despite a $60M deal Reddit has reported excellent quarterly results, with revenue of $805 million (61% more year-on-year) and a net profit of 253 million. Future forecasts are also beating expectations and, even so, the shares have fallen more than 10% after the close. It's down to changes in traffic from Google. AI search changes the rules Steve Huffman, CEO of Reddit, explained in a letter to shareholders that search-engine traffic were pretty volatile during the quarter, especially in the latter part of it. The rise of Google's AI search summaries lets us find answers directly on Google without having to visit Reddit or any other website. Those summaries are already affecting search-engine traffic significantly for many websites. In Reddit's case, the situation is especially delicate because in 2024 the company signed a deal with Google worth $60 million a year in which it handed over its content for AI training, the same one that now seems responsible for the decline in visits. Reddit has tightened access to its data and requires companies training AI models to sign agreements. At the same time, it is seeking to raise the profile of Reddit Answers to compete directly with Google while it considers whether to renew the 2024 deal. Huffman believes communities and real conversations will keep Reddit appealing, but that requires visits. We'll see how the situation evolves, but, in the meantime, shareholders are showing concern.