Reddit reports a solid quarter but shows signs of AI’s impact

Reddit delivered a notably strong second quarter, posting results that comfortably topped Wall Street expectations. Even so, the market reaction was negative after the company acknowledged increasing instability in traffic coming from search engines, highlighting how shifts driven by AI are beginning to affect the platform’s outlook.

The company reported $805 million in revenue for the quarter, a 61% increase from the same period a year earlier. Net income rose even faster, reaching $253 million, up 183%. Reddit also projected next-quarter revenue in the range of $860 million to $870 million and said earnings before taxes should remain healthy, with guidance coming in above what analysts had anticipated.

Under normal circumstances, that combination of strong earnings and upbeat guidance would be expected to support the stock. Instead, Reddit shares fell more than 10% in after-hours trading, suggesting investors were more focused on management’s comments about traffic volatility than on the headline numbers.

Search instability overshadowed the quarter

The key concern emerged from CEO Steve Huffman’s remarks in the company’s shareholder letter. He said referrals from search engines were “choppy” during the quarter and that traffic became more volatile as the period went on, even as he emphasized that Reddit’s broader commercial business remains in good shape.

That comment appears to have unsettled investors because it points to a larger industry shift. As AI increasingly changes how people search for information online, platforms that once benefited from steady search-driven traffic may face new pressure. For Reddit, that raises the possibility that fewer users could arrive through traditional search results.

The issue is especially notable because Reddit has already positioned itself within the AI ecosystem. In 2024, the company signed an agreement to provide content to Google for AI training. At the same time, Google’s expanding use of AI-generated summaries appears to be keeping some users on Google itself rather than sending them onward to sites like Reddit. The company has also indicated it is uncertain whether that partnership with Google will be renewed.

Investor focus shifted to user growth

Another area drawing attention is the quality and location of Reddit’s audience growth. While the company’s global user base continued to expand, its U.S. daily active uniques slipped slightly, falling to 53.2 million from 53.5 million in the previous quarter.

That small decline was enough to keep concerns alive, particularly because the U.S. market is viewed as strategically important. During the earnings call, analysts repeatedly questioned management about whether AI-driven changes in search behavior could make it harder for Reddit to attract and retain users, especially those who visit without logging in.

One analyst said investors increasingly see Reddit as having a user-growth problem, particularly in the U.S., and argued that pressure on logged-out traffic could intensify as search transitions toward AI-driven discovery.

The same analyst also raised a more direct strategic question: if AI reduces referral traffic, does Reddit still benefit enough from licensing its data to companies like Google and OpenAI to continue doing so next year?

Huffman argued Reddit’s core appeal remains intact

In response, Huffman defended Reddit’s long-term position by stressing the platform’s distinctive value: real communities and human conversation. He said Reddit already has content in the U.S. that can appeal broadly to users, and that the company’s challenge is to surface that content more effectively. According to Huffman, Reddit is making progress toward that goal.

His broader argument was that Reddit’s relevance does not depend solely on search referrals. Because the service is built around communities and discussion rather than static information pages, he suggested it remains well positioned even as the online discovery landscape evolves.

When the discussion turned specifically to Google, however, Huffman was less absolute. He noted that Reddit’s relationship with Google extends back further than the formal data-licensing arrangement and said the outcome is not simply an all-or-nothing decision. Instead, he indicated that Reddit’s priority will be to maximize value for the company.

Strong numbers, but a more complicated outlook

Reddit’s latest quarter showed clear financial momentum, with fast revenue growth, sharply higher profit, and forward guidance that surpassed expectations. Yet the reaction from investors underscored that the company is being judged on more than its recent performance.

What matters now is whether Reddit can continue growing as AI reshapes search traffic, online discovery, and the economics of content platforms. For now, the business remains strong on paper. But the pressure created by changing search patterns and questions around user growth, especially in the U.S., has become impossible for investors to ignore.