Reddit's Strong Q2 Overshadowed by AI Search Concerns

Reddit reported robust second-quarter earnings, with total revenue of $805 million, a 61% increase year-over-year, and net income of $253 million, up 183%, beating Wall Street expectations. The company also projected next-quarter revenue of $860 million to $870 million with healthy pre-tax earnings, surpassing guidance. Despite these positive results, the stock fell over 10% in after-hours trading, driven by CEO Steve Huffman's warning in a shareholder letter that search referrals were 'choppy' and traffic became more volatile later in the quarter. Investors fear that AI-driven changes in search engines, particularly Google's AI summaries, are reducing Reddit's traffic. In 2024, Reddit signed a contract to provide content to Google for AI training, but the partnership's renewal is uncertain. Additionally, Reddit's U.S. daily active uniques slightly declined from 53.5 million in Q1 to 53.2 million, while global users increased. During the earnings call, analysts aggressively questioned AI's impact, with one noting the stock's sharp decline due to perceived user problems in the U.S. and asking if Reddit might not license data to Google and OpenAI next year. Huffman emphasized Reddit's human-centric communities as a lasting draw, but was vague about the Google relationship, stating there is no binary outcome and that they will maximize value for Reddit.