Reddit shares dropped 30.44% to $90.15 on Friday after CEO Steve Huffman warned that Google’s AI-driven search features are reducing referral traffic and could cut into the platform’s user base.
The selloff followed a mixed setup for investors. Reddit posted strong third-quarter results, but its revenue outlook for the current quarter came in weaker than expected.
For years, Reddit benefited from users discovering its discussions through Google Search. That traffic pattern is now under pressure as more people get answers directly on Google’s results pages without clicking through to Reddit. That shift matters because advertising has been a major driver of Reddit’s rise as a fast-growing public internet company.
Strong financial results were overshadowed by weaker audience data
On the surface, Reddit’s third-quarter numbers looked solid. Revenue rose 53% year over year to $895 million. Advertising revenue increased 54% to $847 million. Net income reached $283 million.
Diluted earnings per share came in at $1.40, up 75% from a year earlier and above the $1.33 analyst consensus.
The user figures told a less encouraging story. Reddit reported 130.3 million daily active unique visitors, up 12% from a year earlier but below the roughly 134 million analysts had expected. In the U.S., that figure fell 2% to 50.7 million, adding to investor concerns about whether the platform can keep its growth rate intact.
Huffman says Google AI search is not sending traffic
Huffman delivered the warning during Thursday’s earnings call. He said Google search referrals had fallen by more than one million on average every week during October, and that the decline accelerated toward the end of the third quarter.
If that pace continues, Reddit’s total daily active users could decline by a low double-digit percentage in the fourth quarter from the current base of around 130 million, he said.
Huffman pointed directly to Google AI Overviews and AI Mode. Those features generate answers and summaries inside search results, reducing the need for users to visit outside websites. As Google places more information on its own page, traditional search links are pushed lower.
When asked whether those changes were behind Reddit’s declining search traffic, Huffman said the AI features had expanded aggressively in the U.S. and internationally. “The AI mode does not drive traffic, not for us and not to anybody as far as I know,” he told investors.
Fewer search clicks can hurt both acquisition and engagement
That leaves Reddit in an uncomfortable position, and arguably one shared by other standalone media sites across the internet. Users can still search for Reddit discussions, but Google increasingly lets them consume information from those discussions without ever visiting Reddit itself.
Search referrals do more than bring in new users. They also return existing users to the platform. Fewer clicks can therefore affect both user acquisition and Reddit’s ability to keep people engaged.
Reddit plans to test a more login-based product experience
To reduce that dependence, Reddit is moving toward a primarily logged-in experience. In practice, that would require users to sign in before accessing most of the platform.
The company plans to begin testing the change in selected markets outside the U.S. during the fourth quarter.
Data licensing deals with AI firms add another layer
The shift also ties into Reddit’s growing relationship with the AI industry. In February 2024, Reddit signed a reported $60 million-a-year data licensing deal with Google, giving the search company access to Reddit discussions for AI model training.
A few months later, Reddit announced a similar partnership with OpenAI, allowing the ChatGPT maker to use Reddit content while giving Reddit access to OpenAI’s technology.
Those agreements turned Reddit’s large archive of human conversations into a product it could sell to AI developers. At the same time, the AI-powered search experience built on that kind of content can reduce the number of people who actually visit Reddit. The company has also tightened access to its public data and moved toward a more restricted platform, a change that angered long-term users.
Stock is down 44% over the past week as technical signals weaken
Reddit shares have now lost 44% over the past week, with Friday’s 30.44% drop accounting for a large part of that decline. At $90.15, the stock is trading well below levels seen only days earlier.
The technical setup offers little immediate support. Reddit’s 50-day exponential moving average stands around $149.80, while its 200-day average is near $162.12. The 50-day average has already moved below the 200-day average, forming a so-called death cross, a bearish signal often linked to a longer-term downtrend.
From $90.15, Reddit would need to rise about 66%, nearly 70%, just to get back to its 50-day average. Even that would only return the stock to the shorter-term trend line and would not reverse the death cross itself. With both averages still far above the current price, the gap remains wide.
