Reddit's strong earnings can't offset investor fears about AI-driven search disruption

Reddit delivered impressive financial results for the second quarter, yet the market punished its stock. The disconnect reveals a deeper anxiety about how artificial intelligence is rewiring user behavior and threatening the platform's growth trajectory.

The Numbers That Should Have Pleased Wall Street#

The social platform reported revenue of $805 million, a 61% jump from the same quarter last year, while net income soared to $253 million—up 183% year-over-year. Both figures surpassed analyst expectations. The company also raised its outlook for the coming quarter, projecting revenue between $860 million and $870 million with strong pre-tax earnings, another beat.

Yet Reddit's stock fell more than 10% in after-hours trading, suggesting investors dismissed the headline wins.

AI Search Reshaping Traffic Dynamics#

The culprit was CEO Steve Huffman's candid warning in a shareholder letter: "Search referrals were choppy in the quarter, and traffic was more volatile later in the quarter." That phrase—combined with underlying anxiety about how AI is fragmenting the search landscape—sent a chill through the market.

The concern is concrete. In 2024, Reddit inked a content-licensing deal with Google to train its AI systems. Yet Google's own AI-powered search summaries appear to be siphoning users away from Reddit itself, addressing queries directly rather than funneling traffic to the original source. Reddit has indicated it may not renew the Google partnership, caught between the need for data-deal revenue and the risk that such deals accelerate its own audience loss.

The U.S. User Stagnation Problem#

Adding to investor worry: Reddit's daily active users in the United States actually declined slightly from Q1, falling from 53.5 million to 53.2 million, even as global user counts grew. The metric struck analysts as a red flag for a platform heavily dependent on U.S. engagement and advertising.

During the earnings call, one analyst pressed the issue directly: "Your stock is down sharply because there is just a sense from investors that you have a user problem, especially in the U.S." The analyst noted that as search increasingly relies on AI summaries, logged-out referral traffic—which Reddit has historically used to convert casual visitors into registered users—may face mounting pressure.