Reddit’s Strong Quarter Overshadowed by AI-Driven Traffic Concerns

Reddit reported a strong second quarter on Thursday, with total revenue of $805 million jumping 61% year-over-year and net income surging 183% to $253 million — beating Wall Street expectations. But the stock fell more than 10% in after-hours trading after CEO Steve Huffman warned in a shareholder letter that search referrals had grown “choppy,” raising fresh concerns about how artificial intelligence is reshaping the platform’s user acquisition.

Earnings Beat Expectations, But AI Casts a Shadow

Reddit’s Q2 2025 results exceeded analyst forecasts across key metrics. The company also guided for Q3 revenue between $860 million and $870 million with healthy pre-tax earnings, typically a signal that would push a stock higher. Instead, investors focused on the warning buried in Huffman’s letter: “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.”

The tension highlights a growing divide between Reddit’s financial performance and its exposure to structural changes in online search. As of 2024, Reddit has a data licensing agreement with Google that provides the search giant with content for AI training. But Google’s rollout of AI-generated summaries in search results appears to be reducing the number of click-through referrals to Reddit, raising questions about whether the partnership is ultimately cannibalizing the platform’s organic traffic.

U.S. User Numbers Show Slight Decline

Reddit’s global daily active unique users grew in Q2, but U.S. users dipped marginally to 53.2 million from 53.5 million in the prior quarter. The decline, though small, drew sharp scrutiny from analysts during the earnings call. One Wall Street analyst pressed Huffman directly: “Your stock is down sharply because there is just a sense from investors that you have a user problem, especially in the U.S.”

The analyst elaborated that logged-out traffic — visitors who browse Reddit without an account — appears vulnerable as AI-driven search reduces the number of referral links. “As search shifts to AI, you’re not going to get referrals, and it’s going to be harder to get people to go from logged-out to logged-in,” the analyst said, asking whether Reddit would renew its data licensing agreements with Google and OpenAI next year.

Huffman Defends Reddit’s Human-Centric Model

Huffman responded by emphasizing that Reddit’s value lies in its community-driven 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,” he said. On the question of data licensing, Huffman was less definitive: “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.”

The ambiguity leaves investors uncertain about Reddit’s long-term strategy. The company has signaled it may not renew its Google partnership, but walking away could reduce revenue and limit the platform’s visibility in AI-generated search results.

Why This Matters for the Broader Market

Reddit’s situation is a bellwether for how AI is disrupting the traditional search referral model that has driven traffic to publishers and platforms for decades. As Google, OpenAI, and others deploy AI summaries that answer user queries directly, sites that rely on search engine traffic — including news publishers, forums, and content platforms — face an existential question: how do you maintain audience growth when the gateways are changing?

For Reddit specifically, the challenge is compounded by its dual role as both a content provider to AI companies and a platform competing with AI-generated answers. The outcome of its renegotiation with Google will be closely watched as a signal of how content platforms can navigate this new landscape.

Conclusion

Reddit delivered a financially strong quarter that should have pleased investors, but the specter of AI-driven traffic disruption overshadowed the numbers. With U.S. users flat to slightly declining and search referrals becoming unpredictable, the company faces a strategic crossroads: continue licensing its data to the very AI systems that may be eroding its traffic, or chart a more independent path. Huffman’s confidence in Reddit’s community value is clear, but the market is demanding more concrete answers.

FAQs

Q1: Why did Reddit’s stock drop despite strong earnings?
Investors focused on CEO Steve Huffman’s warning that search referrals had grown “choppy,” signaling that AI-generated search summaries may be reducing traffic to Reddit. The stock fell over 10% in after-hours trading as analysts questioned the platform’s user growth trajectory.

Q2: How is AI affecting Reddit’s traffic?
Reddit has a data licensing agreement with Google that provides content for AI training. However, Google’s AI summaries in search results appear to be answering user queries directly, reducing the number of click-through referrals to Reddit — particularly for logged-out users who find the site through search.

Q3: Will Reddit renew its data licensing deal with Google?
CEO Steve Huffman did not give a definitive answer during the earnings call, saying the relationship “predates the formal data licensing agreements” and that the company will “maximize the value for Reddit.” The ambiguity has left investors uncertain about the company’s long-term strategy regarding AI partnerships.