Reddit reports a strong quarter, but a mention of the impact of AI on search traffic unsettled investors
Reddit increased second-quarter revenue by 61 % to 805 million dollars and profit by 183 % to 253 million, yet shares fell by more than 10 % after the results were released due to concerns about the impact of AI summaries in search on traffic.
Reddit reported second-quarter results with revenue of 805 million dollars, a year-over-year increase of 61 %, and net profit of 253 million dollars, an increase of 183 %. Both figures exceeded Wall Street expectations, and the company also announced a revenue outlook for the next quarter of 860 to 870 million dollars with healthy profitability, which also exceeded analyst expectations. Despite this, shares fell by more than 10 % in after-hours trading.
The reason was apparently a letter from CEO Steve Huffman to shareholders, in which he stated that “search referrals were uneven during the quarter and traffic was more volatile toward the end of the quarter, but the broader picture remains unchanged – the commercial business is strong”. According to the article, the global user count is growing, but US daily active traffic fell slightly to 53.2 million from 53.5 million in the first quarter. In 2024, Reddit signed an agreement to provide content to Google for AI training, but according to the article, the rollout of AI summaries in search by Google is diverting some traffic, and Reddit indicated that it is unsure whether it will renew the partnership with Google.
During the earnings call, analysts asked directly about the impact of AI on traffic, including whether management could imagine a world in which Reddit would not license data to Google and OpenAI next year. Huffman responded by saying that he sees the value of Reddit in communities and conversation, which he considers universal, and that, in his words, the company is moving toward making this content more visible to US audiences. He spoke vaguely about the future of the relationship with Google, saying that the relationship predates formal licensing agreements and that he does not see the outcome as binary.
You can find details in the source article.
Why it matters
The case shows how AI summaries in search (e.g. Google AI Overviews) can reduce visitor click-throughs to websites that rely on organic search, even for a company with growing revenue and profit. It also illustrates the tension between licensing content to AI companies and the risk that the same AI products will subsequently replace that traffic.
Relevant practical impact
What this means
For a business
Companies dependent on organic search traffic face the risk of fewer click-throughs due to AI summaries in search, even with strong financial results and licensing revenue from AI companies such as Google and OpenAI, as illustrated by the investor reaction to the results from Reddit.
StrategyCheck the original
Event sources
only one source so far · 1 publisher, 1 independent. We count feeds from the same owner only once.