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

Reddit Beats Wall Street Estimates But Stock Tumbles On Traffic Warnings

Reddit reported second-quarter revenue of $805 million, marking 61% year-over-year growth, while net income surged 183% to $253 million1

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. The social platform also forecast third-quarter revenue of $860 million to $870 million, exceeding analyst expectations of $829.1 million2

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. Despite beating Wall Street estimates across key metrics, RDDT shares fell more than 10% in after-hours trading1

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The stock decline came after CEO Steve Huffman warned in a shareholder letter that search referrals were choppy in the quarter and traffic was more volatile later in the quarter1

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. This volatility in online search patterns triggered immediate investor concern about AI search impact on Reddit's long-term traffic prospects.

AI-Powered Search Summaries Create Traffic Headwinds

The rise of AI-powered search summaries is fundamentally changing how users discover content online. Google's deployment of AI-generated summaries allows users to find answers directly on the search engine without visiting Reddit or other websites5

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. COO Jen Wong acknowledged that SEO headwinds caused by changes in search algorithms more than offset the company's user acquisition efforts during the quarter2

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This development is particularly concerning given Reddit's $60 million annual data licensing for AI agreement with Google signed in 20245

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. The platform provided its content to Google for AI training purposes, but those same AI capabilities now appear to be reducing traffic back to Reddit1

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. Reddit has signaled uncertainty about whether it will renew the partnership with the search giant1

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U.S. Daily Active Users Show Slight Decline

While global daily active users reached 130.3 million, representing 18% year-over-year growth2

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, U.S. daily active users slipped to 53.2 million from 53.5 million in the first quarter1

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. This slight decline in the platform's most valuable market raised additional concerns among analysts about logged-out user engagement and conversion rates.

During the earnings call, one Wall Street analyst bluntly stated that investors believed Reddit had a user problem, especially in the U.S.1

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. The analyst explained that logged-out traffic would face pressure as search shifts to AI, making it harder to convert casual visitors into registered users1

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AI-Powered Advertising Tools Drive Strong Revenue Growth

Despite traffic concerns, Reddit's AI-driven ad strategy continues delivering results. Advertising revenue climbed 64% year-over-year to $762 million4

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. The platform's AI-powered advertising tools enhance campaign performance by offering a library of successful ads, generating Reddit-specific ad copy, tracking visitor actions after ad exposure, and enabling community-based targeting2

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Advertiser growth reached 70% year-over-year in the second quarter, with particularly strong performance among mid-market and small- and medium-sized businesses and international advertisers2

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. Revenue from dynamic product ads and app install campaigns more than doubled from a year earlier4

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Reddit Positions Human-Centric Communities Against AI Summaries

Steve Huffman defended Reddit's value proposition by emphasizing human-centric communities over AI-generated content. "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 said during the earnings call1

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Huffman argued that users increasingly value authentic human conversations over AI-generated summaries, stating that "people don't want a summary of Reddit, they want Reddit"4

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. He described the platform as the antidote to an automated web where consumers seek real opinions, firsthand experiences, and trusted community discussions4

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Future Of Google Partnership Remains Uncertain

When pressed about whether Reddit would stop data licensing for AI with Google and OpenAI next year, Huffman remained vague1

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. "Our relationship with them actually predates the formal kind of data licensing agreements. I don't think there's a binary outcome...we will make sure that we're maximizing the value for Reddit," he stated1

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Reddit is simultaneously developing Reddit Answers to compete directly with Google while tightening access to its data, requiring companies training AI models to sign agreements5

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. The platform faces a delicate balance between monetizing its content through data licensing for AI deals and protecting the search traffic that drives user growth and engagement.