Reddit Reports a Solid Quarter but Shows Signs of AI's Impact

Reddit posted a genuinely strong second quarter, beating Wall Street's revenue and profit expectations comfortably, yet the company's stock still dropped more than 10 percent in after-hours trading as investors focused on early signs that AI-powered search is starting to reshape how people find their way to the platform.

The numbers that beat expectations

Reddit reported total revenue of $805 million, a 61 percent increase year-over-year, alongside net income of $253 million, up a striking 183 percent from the same period last year. Both figures came in ahead of what Wall Street analysts had projected, and the company's guidance for the current quarter, $860 to $870 million in revenue, points to continued growth rather than a slowdown.

Why the stock fell anyway

Despite those strong headline numbers, investors zeroed in on a more concerning underlying trend: US daily active unique users slipped slightly, from 53.5 million in the first quarter to 53.2 million in the second, even as Reddit's global user base grew overall. CEO Steve Huffman described the specific driver behind that softness directly: "Search referrals were choppy in the quarter... but the bigger picture is unchanged: the commercial business is strong." Choppy search referrals, in an earnings context, is corporate shorthand for a genuinely uncomfortable possibility, that Google's AI-generated search summaries may increasingly be answering users' questions directly on the search results page itself, without those users ever clicking through to the original Reddit thread the answer was drawn from.

The Google relationship at the center of the concern

Reddit signed a data-licensing deal with Google back in 2024 specifically allowing Reddit content to be used for AI training purposes, a deal that has provided Reddit with real licensing revenue. But the same AI capabilities Reddit helped train through that licensing arrangement may now be reducing the traffic Reddit would otherwise receive from search, since Google's AI summaries can surface information originally sourced from Reddit without sending the searcher to Reddit's site at all. Reddit's own reporting notes the company is uncertain whether it will renew that partnership with Google going forward, a sign the arrangement's value to Reddit may be getting reassessed given this traffic dynamic.

Huffman's pitch for what Reddit still offers

Facing questions about AI's effect on search traffic, Huffman leaned into a different value proposition for the platform rather than disputing the search traffic concern directly: "Reddit is communities and conversation. Communities are universal," positioning Reddit's core appeal around genuine human interaction and community belonging rather than as simply a repository of searchable answers that AI systems can extract and repackage elsewhere.

The harder problem Wall Street is watching

Analysts flagged a more specific structural concern beyond the immediate US user dip: as search behavior shifts toward AI-generated answers, Reddit faces a genuine challenge converting logged-out visitors, people who land on a Reddit thread from a search result without an account, into logged-in, retained users. If AI search summaries increasingly satisfy users' questions without requiring a click through to Reddit at all, that entire logged-out-to-logged-in conversion funnel, historically an important growth channel for the platform, could shrink structurally rather than through any specific misstep by Reddit itself.

A company earning strongly while facing a structural question

The core tension in Reddit's quarter is that its commercial business, advertising, licensing and monetization, is performing exceptionally well by conventional financial metrics, while a slower-moving but potentially more consequential threat, AI reshaping how people discover information online, is only beginning to show up in the user growth numbers. How Reddit navigates its own relationship with Google and other AI platforms over the coming quarters may matter more to its long-term trajectory than any single quarter's revenue beat.