Reddit's Quarter Beats Expectations, but Investors Worry About AI's Impact

Reddit's strong second quarter earnings report was overshadowed by concerns about the impact of artificial intelligence on the company's traffic.

CEO Steve Huffman's Warning Spooks Investors

The company's total revenue of $805 million jumped 61% compared to the year-ago quarter, while net income was $253 million, up 183%. These numbers beat Wall Street's expectations. However, the company's stock slid over 10% in after-hours trading.

The culprit behind this decline was likely Huffman's warning in the investor letter. "Search referrals were choppy in the quarter, and traffic was more volatile later in the quarter, but the bigger picture is unchanged: the commercial business is strong," he wrote.

AI's Changing Search Landscape

Reddit's relationship with Google, where it provides content for AI training, has been a point of contention. Google's deployment of AI summaries appears to be peeling away audience share from Reddit, and the site has signaled it's not sure whether it will renew the partnership with the search giant.

Reddit's global users are up, but the platform saw a slight decline in U.S. users.

During the earnings call, some analysts aggressively questioned AI's impact on Reddit's audience.

"I don't want to belabor this point, but your stock is down sharply because there is just a sense from investors that you have a — I don't want to, to be blunt — a user problem, especially in the U.S.," one Wall Street analyst said.

Huffman's response was that Reddit's human aspect would continue to make it a destination for users.

"Reddit is communities and conversation. Communities are universal, and so we think we have in the U.S. content for everyone, and it's a matter of revealing that. And we're making progress towards that end," Huffman said.

A Clouded Future for Reddit

When it comes to Google, Huffman was vaguer. "Our relationship with them actually predates the formal kind of data licensing agreements," he said. "I don't think there's a binary outcome…we will make sure that we're maximizing the value for Reddit."