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Reddit reports a solid quarter but shows signs of AI’s impact
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- DeepHorus
Reddit reported a strong second quarter on Thursday, with revenue and net income beating Wall Street expectations, but the stock slid over 10% in after-hours trading after CEO Steve Huffman warned that search referrals had become “choppy” due to changes in the search landscape driven by artificial intelligence. The social media platform’s total revenue reached $805 million, a 61% jump year-over-year, while net income surged 183% to $253 million. The company also issued better-than-expected guidance for the next quarter, forecasting revenue between $860 million and $870 million. However, investors focused on Huffman’s cautionary note in an investor letter, which highlighted volatility in traffic from search engines late in the quarter.
The strong financial performance came amid growing concerns about how AI is reshaping traffic patterns for content platforms. Reddit signed a contract in 2024 to provide its content to Google for AI training, but Google’s deployment of AI summaries appears to be drawing audience away from Reddit. The company has signaled uncertainty about renewing the partnership with the search giant, adding to investor unease. During Thursday’s earnings call, analysts pressed Huffman on whether Reddit faces a “user problem,” particularly in the U.S., where daily active uniques dipped slightly from 53.5 million in the first quarter to 53.2 million in the second quarter.
Huffman defended the platform’s value proposition, emphasizing that Reddit’s human-driven communities and conversations make it a unique destination. “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,” he said. He was more circumspect about the future of the data licensing agreement with Google, stating, “I don’t think there’s a binary outcome…we will make sure that we’re maximizing the value for Reddit.” This vagueness has left investors uncertain about the platform’s strategy amid AI’s growing influence on search.
The impact of AI on Reddit’s traffic is a key concern for investors, as search engines increasingly use AI-generated summaries that reduce the need for users to click through to source sites. This shift could undermine Reddit’s logged-out traffic, which heavily relies on search referrals. Analysts questioned whether the platform can convert logged-out users into logged-in ones, especially if AI search reduces referral volumes. “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,” one analyst said during the call.
Looking ahead, Reddit faces a critical juncture as it navigates its relationship with Google and other AI players. Huffman’s comments suggest that the company is evaluating its options to maximize value, which could mean renegotiating terms or diversifying partnerships. The broader context is that AI is fundamentally altering the search ecosystem, and content platforms like Reddit must adapt to maintain traffic and revenue. Reddit’s strong financials in the near term are encouraging, but the longer-term outlook depends on how effectively it can manage the transition to an AI-driven search landscape without losing its core user base.
