Guess there’s no pleasing investors.
Despite Reddit delivering an objectively solid Q2, with overall revenue up 61% year-over-year to $805 million and advertising revenue up 64% YoY to $762 million, the company’s stock cratered on Thursday, sliding nearly 13% in after-hours trading.
Why? Because AI.
Specifically, Wall Street is fixated on how AI is reshaping search referral traffic, which is one of Reddit’s key growth levers. Reddit relies on search as a major source of traffic and potential new users, especially logged-out visitors it hopes to convert into higher-value app users.
But a lot of that traffic is now being intercepted by Google AI Overviews before people have a chance to click through.
“Search referrals were choppy in the quarter and traffic was more volatile later in the quarter,” Reddit CEO Steve Huffman told investors on Thursday evening. “But the bigger picture is unchanged.”
By “bigger picture” Huffman is referring to Reddit’s long-term growth plan, which involves investing in its product, including its ad stack, and transforming its 500 million weekly users into 1 billion daily users.
“While our visibility and referral traffic remains low, we’re not building for drive-by traffic,” Huffman said. “We’re building a daily destination.”
In search of …
But not all publishers have that same luxury. And if a scaled player like Reddit is having traffic trouble, one shudders to think of the rest of the ecosystem.
Also, Reddit isn’t just some random site caught in the blast radius. It has business arrangements and licensing deals with the same AI companies that are reshaping the search experience in real time.
And investors had a lot of pointed questions.
On the call, analyst Rich Greenfield of LightShed Partners, put it bluntly, noting that Wall Street sees Reddit as having “a user problem” and asking whether there’s “any world” in which Reddit isn’t licensing data to Google or OpenAI by next year.
Huffman pushed back on the idea that Reddit’s growth story is broken, pointing to its updated new-user app experience that keeps people coming back more often.
“That sort of improvement in retention drives growth, and that is work we’re in control of,” Huffman said. “Yes, external search is volatile, particularly logged-out web, but that’s not where our business lives, and we will make sure that we get as much value from that traffic as we can.”
But he was a little more careful on the licensing question.
“The range of outcomes is wide, and we have to look at every aspect of this and make sure we’re maximizing value to Reddit,” Huffman said.
He framed the relationship with a company like Google as “multifaceted,” because there’s not just one way for them to work together.
Beyond using Reddit’s data to train its models, Google can tap Reddit’s corpus to teach those models how to talk naturally and for “grounding,” which is the practice of anchoring AI answers in real, up‑to‑date source material instead of relying only on static training data.
There’s a reason investors are so preoccupied with the possibility that Reddit might not renew its roughly $60 million‑a‑year licensing deal with Google. Earlier this month, reports surfaced that the company is at least considering not signing a new agreement, a signal that even as AI money starts rolling in, Reddit is still feeling out how much access to sell, to whom and on what terms.
“There are many layers and dimensions for how this can work,” Huffman said. “Reddit’s data is valuable beyond just raw training data, and these deals aren’t binary. They have to make sense for Reddit.”
