Reddit Revenue Up 61 Percent, Shares Fall as Investors Worry About AI Impact

JAKARTA - Reddit recorded a strong second quarter performance. Its revenue and net profit exceeded Wall Street's expectations. However, the company's shares fell more than 10 percent in after-hours trading.

TechCrunch, quoted Friday, July 31, reported that pressure on Reddit's stock came after the company said traffic from search engines was growing unsteadily. Investors read the signal as an early sign of the impact of AI on Reddit's business.

Reddit's revenue in the second quarter reached 805 million US dollars, up 61 percent compared to the same period last year. Net profit reached 253 million US dollars, jumping 183 percent.

The figure beat market estimates. Reddit also forecast next quarter's revenue to be in the range of $860 million to $870 million, with a healthy pretax profit.

Usually, reports like this are enough to make stocks go up. This time it's not. Investors instead highlighted Reddit CEO Steve Huffman's warning in a separate letter to shareholders.

"Referrals from search were volatile this quarter, and traffic became more volatile towards the end of the quarter. However, the big picture hasn't changed. Commercial business remains strong," Huffman wrote, quoted by TechCrunch.

A reference from search is a visit that comes from a search engine such as Google. For platforms such as Reddit, the user flow from search is important because many people find Reddit discussions through search results.

The problem is, AI is starting to change the way people use search engines. AI summaries on the search page can make users get answers without having to open the original site. Investor concerns are also easier to understand.

In 2024, Reddit signed a contract to provide its content to Google for AI training needs. TechCrunch said that the implementation of Google's AI summary seems to have started to erode Reddit's audience share.

Reddit has also signaled it is not sure whether it will renew its partnership with the search engine giant.

Another highlight came from user growth. Globally, Reddit users are still rising. However, the number of unique daily active users in the United States fell slightly to 53.2 million from 53.5 million in the first quarter.

In a performance presentation on Thursday, a number of analysts pressured Reddit management with questions about the impact of AI on the company's audience.

"I don't want to go too long on this point, but your stock is down sharply because there is an impression from investors that you have, I don't want to be too blunt, user problems, especially in the US," said a Wall Street analyst.

The analyst also touched on the risk of traffic from users who have not logged into their accounts. According to the Wall Street analyst quoted by TechCrunch, when search shifts to AI, Reddit could lose referrals from search engines.

As a result, it will be more difficult for companies to convert users who have not logged in to registered users.

He then asked whether Reddit was looking at the possibility of no longer licensing data to Google and OpenAI next year.

Huffman replied, the human element remains Reddit's main strength. According to Huffman, Reddit is built on communities and conversations, not just a collection of links or short answers.

"Reddit is a community and a conversation. The community is universal. So, we think that in the US, we have content for everyone, and it's about showing that content. We're making progress towards that goal," Huffman said.

When asked about Google, Huffman gave a more cautious answer. He said Reddit's relationship with Google existed before the formal data licensing agreement.

"I don't think the outcome is binary. We'll make sure we maximize value for Reddit," Huffman said.