Reddit Inc. shares fell after the company reported second-quarter earnings and noted that search referrals from Google had become "choppy" [1, 2].
The volatility highlights the platform's dependence on external search engines for user growth. While the company's financial metrics showed strength, investors reacted to the potential instability of its primary traffic pipeline.
Reddit reported that revenue rose 61% to $805 million [3, 4]. The company also posted earnings per share of $1.25 [4]. Despite these figures beating estimates, the stock market response was negative following the earnings release on July 30 [2].
Reports on the scale of the stock's decline varied. Yahoo Finance reported the stock fell 21% [1], while CNBC reported shares sank 11% [2]. Other reports indicated the stock slid between seven% and 10% during after-hours trading [3].
CEO Steve Huffman said search referrals turned "choppy" during the second quarter [1]. The company is now pushing users toward its own app to mitigate the impact of fluctuating external traffic [1].
Financial analysts are also monitoring the company's long-term contracts. A data-licensing deal valued at $60 million is scheduled to expire in 2027 [4]. This agreement is part of the broader strategy to monetize Reddit's vast repository of human-generated conversation for AI training, and search optimization.
Throughout the quarter, the company maintained a trajectory of aggressive revenue growth. However, the market reaction suggests that the quality and stability of user acquisition are currently viewed as more critical than immediate top-line growth [2, 3].
“Search referrals turned "choppy" during the second quarter.”
The divergence between Reddit's strong financial growth and its falling stock price reveals a systemic risk in its business model. By relying heavily on Google for discovery, Reddit is vulnerable to changes in search algorithms or the rise of AI-generated search summaries that keep users on the search page rather than clicking through to the source. The push toward app adoption is an attempt to own the user relationship and diversify traffic sources.
