Reddit Reports a Strong Quarter but Shows Signs of AI’s Impact

Reddit delivered another strong quarterly performance, but concerns about how artificial intelligence is reshaping internet search appeared to overshadow the company’s financial results.

The social platform reported second-quarter revenue of $805 million, up 61% from a year earlier, while net income climbed 183% to $253 million. Both figures exceeded Wall Street expectations.

Reddit also issued an optimistic outlook for the current quarter, forecasting revenue between $860 million and $870 million, along with stronger-than-expected earnings before taxes.

Despite those results, the company’s shares fell more than 10% in after-hours trading.

Search traffic concerns weigh on shares.

The market reaction appeared to stem from comments made by CEO Steve Huffman in a letter to shareholders.

Huffman said traffic arriving from search engines had become “choppy” during the quarter.

“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 comments renewed investor concerns that AI-powered search tools could reduce the amount of traffic Reddit receives from traditional search engines.

In 2024, Reddit signed an agreement allowing Google to use its content for AI model training.

At the same time, Google’s growing use of AI-generated search summaries has raised concerns that users may increasingly receive answers directly within search results instead of clicking through to Reddit.

The company has also suggested it remains uncertain whether it will renew its content licensing agreement with Google.

Investors question user growth

Another issue drawing attention was Reddit’s user growth.

Although the platform continued expanding globally, its U.S. daily active unique users slipped slightly to 53.2 million from 53.5 million in the previous quarter.

During Thursday’s earnings call, analysts repeatedly questioned whether AI-driven search changes could make it more difficult for Reddit to attract new users.

One analyst noted that investors were concerned logged-out traffic could remain under pressure as search increasingly shifts toward AI-generated results, making it harder to convert casual visitors into registered users.

The analyst also asked whether Reddit could eventually stop licensing its content to companies such as Google and OpenAI.

Reddit remains confident in its community model.

Huffman argued that Reddit’s human-generated discussions continue to differentiate the platform.

“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,” he said.

When asked specifically about Google’s licensing agreement, Huffman was less definitive.

He noted that Reddit’s relationship with Google existed long before the formal AI licensing partnership.

Rather than committing to any specific outcome, Huffman said the company would continue focusing on maximising the value of Reddit’s content while navigating its relationships with AI companies and search providers.