Reddit reported second quarter revenue and profit above Wall Street expectations, but its shares fell more than 10% after hours after the company warned that search-driven traffic had turned “choppy.”
Total revenue rose 61% from a year earlier to $805 million, while net income increased 183% to $253 million, according to the company. Reddit also forecast third quarter revenue of $860 million to $870 million and said it expected healthy earnings before taxes.
Chief Executive Steve Huffman told shareholders in a letter that search referrals had become less predictable during the period. “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,” he wrote.
The company’s comments added to investor concern that changes in online search, driven by artificial intelligence features, could weigh on Reddit’s traffic. Reddit signed a contract in 2024 to provide content to Google for AI training, but the company has indicated it is uncertain whether it will renew that partnership.
Questions also centered on where Reddit’s audience is growing. Global users increased, but U.S. daily active uniques slipped to 53.2 million from 53.5 million in the first quarter.
Analysts pressed the company on that trend during Thursday’s earnings call. One Wall Street analyst said investors believed Reddit had “a user problem, especially in the U.S.,” and said logged-out traffic could face pressure as search shifts toward AI-generated answers.
The same analyst asked whether Reddit could stop licensing data to Google and OpenAI next year. Huffman said Reddit’s human-driven communities would continue to attract users.
“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. And we’re making progress towards that end,” Huffman said.
On Google, Huffman gave no direct answer on the future of the arrangement. “Our relationship with them actually predates the formal kind of data licensing agreements,” he said. “I don’t think there’s a binary outcome … we will make sure that we’re maximizing the value for Reddit.”
Featured image credit
