Reddit delivered better-than-expected quarterly results, but market focus quickly shifted from earnings to traffic fluctuations. The company mentioned in its letter to investors that traffic growth from search engines had been volatile, and its stock price subsequently fell more than 10% in after-hours trading.
Second-quarter results remained strong.
In the second quarter, Reddit's revenue was $805 million, a year-over-year increase of 61%; net income was $253 million, a year-over-year increase of 183%. The company's revenue guidance for the next quarter is $860 million to $870 million, which also exceeded market expectations.
AI search changes the traffic diversion structure
The core concern for investors isn't Reddit's quarterly profitability, but rather how AI is reshaping the search landscape. With Google's introduction of AI summaries, users may find answers directly on search results pages, reducing the number of times they need to navigate to content platforms like Reddit.
In 2024, Reddit signed an agreement with Google to provide the latter with platform content for AI training. However, with the accelerated deployment of AI search, such collaborations have raised new questions: can content licensing compensate for the impact of slowing external traffic?
US users saw a slight decline.
In addition to search engine traffic, analysts are also focusing on the structure of Reddit's user growth. The company's global user base continues to grow, but daily active unique users in the US market have declined slightly from the previous quarter, from 53.5 million to 53.2 million.
During the earnings call, an analyst directly pointed out that investors are concerned about the user growth pressure Reddit faces in the US market. One market assessment is that if search traffic continues to concentrate on AI results pages, access from unregistered users may be under pressure, and converting these users into registered users will become more difficult.
The future of data licensing remains unclear.
Analysts also pressed for clarification on whether Reddit would continue licensing data to Google and OpenAI next year. Reddit CEO Steve Huffman did not give a definitive answer, only stating that the company's relationship with Google predates a formal data licensing agreement and that future arrangements would be made with the goal of enhancing Reddit's value.
Huffman also emphasized that Reddit's strength still lies in its community and authentic discussions. He stated that the platform has content covering a wide range of interests, and the next focus is on making this content more easily discoverable for more users.
The results reflect a broader shift: even as performance continues to grow, AI's reshaping of search distribution and user access is beginning to influence capital markets' valuations of content platforms.
