Reddit Plunges 11% on Choppy Google Search Referrals
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- Reddit beat Q2 estimates with EPS of $1.25 vs $0.95 expected and revenue of $805M vs $730M expected, yet shares sank 11% in extended trading as Wall Street latched onto softening search-referral data.
- CEO Steve Huffman disclosed in the investor letter that "search referrals were choppy in the quarter, and traffic was more volatile later in the quarter," underscoring the market's anxiety about Reddit's reliance on Google for new-user acquisition.
- Reddit issued Q3 revenue guidance of $860M-$870M, topping analyst estimates of $828M, and projected adjusted earnings of $385M-$395M versus Wall Street's $368M.
- Reddit is weighing whether to cut off Google's access to its data, per an earlier Wall Street Journal report, as Huffman said the company has "still yet to find that win-win" with Google in AI overviews.
- Reddit's free cash flow more than doubled year-over-year to $261M from $111M, net income climbed to $253M from $89M, and global daily active unique users rose 18% to 130.3M, beating the 129.9M analyst estimate.
- Reddit's "Other revenue" category—including data licensing—grew 24% year-over-year to $43M, with OpenAI and Google as its two largest data licensing partners.
Why it matters: Reddit's data licensing business with OpenAI and Google grew 24% year-over-year to $43M, yet the same Google relationship is now the source of investor anxiety because Gemini-powered AI search is siphoning the referral traffic Reddit depends on—leaving the company weighing whether to keep selling data to the platform undercutting its user pipeline.
