Reddit Posts Strong Q2 Revenue, But AI Concerns Weigh on Investors

Popular platform Reddit significantly outperformed analysts' financial forecasts in the second quarter, but changes in search engines and the impact of AI worried investors. According to ixbt.com and other sources, despite positive financial reports, the company's shares fell by more than 10% in after-hours trading, Techcrunch.com reports .

The company's total revenue surged 61% year-over-year to reach $805 million. Net income also jumped 183% to $253 million. These results exceeded all Wall Street expectations, with projected revenue for the next quarter set between $860 million and $870 million.

Search Engine Changes and AI Risks

Normally, such positive financial forecasts should have driven the company's stock price up. However, the sharp drop in shares was triggered by CEO Steve Huffman, who noted in a separate letter to shareholders that search engine traffic remained "uneven." According to him, search referrals fluctuated throughout the quarter, although the overall commercial business remains robust.

The rapid development of AI technologies is fundamentally changing the search engine landscape. The introduction of AI-powered summaries and answers by giants like Google is believed to be siphoning off user share from platforms like Reddit. Investors fear that this exact factor will negatively impact platform traffic in the future.

Google Partnership and Slight User Decline

As a reminder, in 2024 Reddit signed a major agreement to license its content to Google for training AI models. However, because the search giant's new approaches are creating competition in audience engagement, platform management expressed hesitation about renewing this partnership in the future.

Another aspect worrying investors is related to user activity. Although the global user base grew, the US market saw a slight decline in daily active users, dropping from 53.5 million in the first quarter to 53.2 million.

During the earnings presentation on Thursday, analysts grilled executives with sharp questions regarding AI's impact on the audience. Experts pointed out that as search engines transition to AI, converting non-logged-in lurkers into registered users will become harder, and they questioned whether data licensing policies will continue next year.