Reddit beat Wall Street’s expectations with 61% revenue growth and strong guidance, yet its stock slid more than 10% after hours. The culprit was a single warning: search referral traffic has grown “choppy” as Google’s AI Overviews intercept clicks before they reach Reddit. It’s a stark example of AI reshaping the web’s traffic economy.

Key Takeaways

• Reddit’s Q2 revenue jumped 61% to $805 million, beating estimates
• Net income rose 183% to $253 million, and guidance beat forecasts
• The stock still fell over 10% after hours on AI traffic fears
• CEO Steve Huffman called search referrals “choppy”
• Google’s AI Overviews are peeling away Reddit’s referral clicks

The Strong Numbers

By the standard metrics, it was a great quarter. Reddit’s total revenue of $805 million jumped 61% compared to the year-ago quarter, while net income hit $253 million, up 183%, both beating Wall Street’s expectations.

The outlook looked strong too. Reddit said it expects revenue of $860 million to $870 million next quarter with healthy pre-tax earnings, guidance that also topped what analysts had forecast.

Normally that spells a rising stock. Telling investors to expect even better results ahead usually sends shares up, but instead Reddit’s stock slid over 10% in after-hours trading, a disconnect that points to something beyond the raw numbers.

The Warning That Spooked Investors

One line in the shareholder letter did the damage. CEO Steve Huffman wrote that search referrals were choppy in the quarter, and traffic was more volatile later in the quarter, while insisting the bigger picture is unchanged and the commercial business is strong.

The concern is structural. AI is reshaping the search landscape, and investors fear Reddit’s traffic could suffer as Google’s AI-generated summaries answer users’ questions before they click through to sites like Reddit.

The licensing irony is sharp. In 2024, Reddit signed a contract to provide its content to Google for AI training, yet Google’s deployment of AI summaries now appears to be peeling away audience share, raising questions about whether the deal is cannibalizing Reddit’s own traffic.

The User Growth Question

A second worry compounded the first. While Reddit’s global users grew, the platform saw US daily active uniques dip slightly to 53.2 million from 53.5 million in the prior quarter, a small decline that drew sharp analyst scrutiny.

The vulnerability is logged-out visitors. Reddit relies on search to bring in logged-out users it hopes to convert into higher-value app users, and as AI-driven search reduces referral links, that conversion pipeline looks exposed.

An analyst pressed the point directly. One told Huffman the stock was down because investors sense a user problem in the US, warning that as search shifts to AI, referrals dry up and it gets harder to turn logged-out visitors into logged-in ones.

Reddit’s Response

Huffman argued Reddit isn’t built for that traffic anyway. He said the company is not building Reddit for drive-by traffic but for direct usage, where its business lives, pointing to the strength of its ads business despite search volatility.

He framed it as a familiar cycle. Huffman noted Reddit has seen this kind of volatility many times before, and that its revenue growth stays strong because it depends on direct repeat users the company can grow through conversion and retention efforts.

There’s an unresolved thread on licensing. Reddit has signaled it’s unsure whether it will renew its Google partnership, reassessing the value of a deal that may be undercutting its own traffic even as it generates licensing revenue.

Why It Matters

Reddit is a vivid case study in AI’s traffic squeeze. A company posting 61% growth still got punished because investors now price in the risk that AI search will erode the referral traffic underpinning its growth, a fear that extends across the publishing web.

The tension is between today and tomorrow. Reddit’s advertising business is thriving now, but its exposure to structural change in how people find content online is what worries Wall Street, and that gap between performance and perception drove the sell-off.

The bigger story is the shifting bargain of the open web. As Google’s AI Overviews keep users on Google, sites that depend on search referrals face a reckoning, and Reddit’s choppy quarter is an early, high-profile sign of what that future looks like.

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