TLDR
- Reddit revenue jumped 61% year over year, beating Wall Street expectations.
- Net income surged 183% as advertising and commercial businesses remained strong.
- Shares fell 10.1% after management warned search traffic had become volatile.
- Investors fear AI-powered search results could reduce Reddit referral traffic.
Reddit (RDDT) Stock: Drops 10.1% Despite 61% Revenue Growth and Profit Surge
Reddit delivered one of its strongest quarterly performances since becoming a public company, yet investors focused on a different story. The social media platform reported sharply higher revenue and profits for the second quarter, but concerns about the effect of artificial intelligence on search traffic sent its stock down 10.1% in after-hours trading.
The reaction highlighted a growing tension facing many internet companies: strong financial results today may not be enough if investors worry that AI is changing how users discover content online.
Revenue Beats Expectations
Reddit generated $805 million in revenue during the second quarter, a 61% increase from a year earlier. The company also posted net income of $253 million, representing a 183% jump compared with the same period last year.
Both figures came in ahead of Wall Street expectations. Management also issued an upbeat outlook for the third quarter, projecting revenue of $860 million to $870 million and forecasting healthy earnings before taxes.
Ordinarily, that combination of accelerating growth, expanding profitability, and stronger guidance would be expected to lift a technology stock. Instead, investors quickly sold shares after reading management’s comments about traffic trends.
Search Traffic Turns Volatile
In a letter to shareholders, Reddit CEO Steve Huffman said that search-engine referrals had become “choppy” during the quarter and that traffic grew more volatile toward the end of the reporting period.
Although Huffman emphasized that the company’s commercial business remained strong, the wording appeared to unsettle investors. Search referrals have historically been an important source of visitors for Reddit, especially users who arrive through Google while looking for answers, recommendations, or discussions.
The concern is not that Reddit’s business is weakening immediately. Rather, investors are trying to assess whether AI-powered search tools could gradually reduce the number of people who click through to Reddit pages.
AI Pressure Enters Focus
Reddit has been closely tied to the AI boom. In 2024, the company signed an agreement to license its content to Google for AI training purposes. That deal created a new revenue opportunity, but it also linked Reddit’s future more closely to the evolution of search technology.
Google’s increasing use of AI-generated summaries in search results has raised concerns that users may obtain information directly from the search page instead of visiting websites. If fewer users click through to Reddit discussions, advertising growth could eventually face pressure.
Management suggested that the relationship with Google is not a simple all-or-nothing arrangement. Huffman said the partnership existed before formal data-licensing agreements and that Reddit would continue seeking the best economic outcome for the company.
His comments left open the possibility that licensing arrangements could evolve rather than end entirely.
U.S. User Growth Questioned
Another issue drawing attention was user growth in Reddit’s most valuable market.
The company reported that global usage continued to increase, but U.S. daily active users slipped slightly to 53.2 million from 53.5 million in the previous quarter. The decline was small, yet analysts treated it as a potential warning sign.
During the earnings call, several analysts pressed management on whether AI-driven changes in search behavior could make it harder to convert casual visitors into logged-in Reddit users.
One analyst argued that investors increasingly fear pressure on “logged-out” traffic as search engines incorporate more AI-generated answers. That traffic has traditionally helped introduce new users to Reddit communities.
Communities Remain Central
Huffman defended Reddit’s long-term position by emphasizing the platform’s human element.
He argued that Reddit is fundamentally built around communities and conversations, not just information retrieval. According to management, the company still believes it has relevant content for a broad U.S. audience and is working to improve how users discover those communities.
That distinction may become increasingly important in an AI-driven internet. If users value authentic discussions, personal experiences, and community interaction, Reddit could remain differentiated from AI-generated summaries.
For now, however, the market is signaling caution. Reddit’s quarter showed that the company can produce rapid revenue growth and substantial profit expansion. Yet the 10.1% stock decline suggests investors are looking beyond current earnings and focusing on a bigger question: whether AI will ultimately become a tailwind for Reddit’s business or a threat to the traffic that helped build it.
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