Reddit's Booming Profits Can't Calm Fears That AI Is Quietly Eating Its Audience

Reddit delivered one of its strongest financial performances since going public, reporting $805 million in total revenue for the second quarter — a 61% year-over-year increase — while net income surged 183% to $253 million. Both figures cleared Wall Street's forecasts, and the company's forward guidance of $860 million to $870 million in Q3 revenue also exceeded analyst expectations. Under normal circumstances, that combination of strong results and optimistic guidance would send a stock climbing. Instead, Reddit shares dropped more than 10% in after-hours trading, a sharp reversal that underscored how nervous investors have grown about the platform's long-term relationship with AI-driven search.

The anxiety traced back to a shareholder letter from CEO Steve Huffman, who acknowledged that search referrals had become 'choppy' and that traffic grew more volatile toward the end of the quarter. While Huffman insisted the commercial business remained fundamentally healthy, the candid admission was enough to rattle markets. Search engine traffic has historically been one of Reddit's most reliable pipelines for bringing new and casual users onto the platform, so any turbulence there carries real strategic weight — even if the financial damage hasn't materialized in a meaningful way yet.

A central part of the concern involves Reddit's existing deal with Google, signed in 2024, which allows the tech giant to use Reddit's content for AI training purposes. The irony of that arrangement is becoming harder to ignore: the same AI capabilities that Reddit helped train are now being used in Google's AI Overviews feature, which delivers summarized answers directly in search results and reduces the need for users to click through to Reddit threads at all. The platform has signaled uncertainty about whether it will renew the Google partnership when the current agreement expires, a decision that could have significant financial and traffic implications.

The U.S. user picture added another layer of concern for analysts on the earnings call. While Reddit's global daily active user base continued to grow, domestic daily active uniques slipped slightly — from 53.5 million in Q1 to 53.2 million in Q2. That marginal dip might be statistically minor, but it fed into a broader narrative that AI-assisted search is putting logged-out traffic under mounting pressure. Analysts pointed out that casual, search-referred users are often the top of the funnel that eventually converts into engaged, logged-in community members — making disruption at that stage a compounding risk over time.

During the earnings call, one analyst put the investor anxiety bluntly, telling Huffman that the market sensed a 'user problem, especially in the U.S.' and asking directly whether Reddit could envision a future without its licensing deals with Google and OpenAI. Huffman defended Reddit's unique position, emphasizing the human element of community conversation as a differentiator that AI cannot easily replicate. On the Google question specifically, he stopped short of any firm commitment, saying only that the company would ensure it was 'maximizing value for Reddit' — language that suggests negotiations are live and outcomes uncertain.