Reddit Stock Plunges 23% as Google’s AI Search Cuts Off Its Traffic

Reddit shares tumbled as much as 23% Friday, threatening to erase about $5.7 billion in market value after the company warned that Google’s AI search tools are draining its traffic.

The selloff came even though Reddit beat Wall Street estimates for the third quarter. Revenue jumped 53% to $895 million, and net income reached $283 million, or $1.40 a share.

Analysts had expected $1.35 a share on $878 million in revenue, according to LSEG data cited by CNBC. The stock still fell more than 15% in after-hours trading Thursday.

Search Traffic Dries Up

The problem is users. Daily active unique visitors grew 12% to 130.3 million, short of the 133.7 million analysts expected. U.S. daily users fell 2% to 50.7 million, well below forecasts of 53.5 million.

CEO Steve Huffman said referral traffic from Google went “down meaningfully in this quarter” because of the “shift to AI mode and AI overviews.” He said the trend will continue into the fourth quarter.

Huffman called it “a fundamental shift in how the Google product works, from being a traffic driver to whatever’s going on now.”

Reddit told investors its total daily users could fall by a low double-digit percentage in the fourth quarter if search referrals keep falling, Reuters reported.

Search referrals dropped by more than 1 million a week on average in October, and the stock touched $99.80 in premarket trading, Investing.com reported. Shares hit a 52-week high of $263.50 earlier in the year.

Reddit’s fourth-quarter revenue forecast of $1 billion to $1.03 billion also fell short of the $1.05 billion Wall Street wanted. “It’s still a strong guide,” Huffman insisted.

Analysts weren’t convinced. Citizens and KeyBanc downgraded the stock, and Piper Sandler said a reset in expectations was appropriate with the near-term outlook “increasingly clouded.”

To hold on to its audience, Reddit plans to require users to log in to access the site, starting with tests outside the U.S. this quarter. Logged-in users are more valuable to advertisers.

“Reddit is the last platform to provide basically unfettered logged-out access, and that’s largely because of me,” said Huffman, a co-founder.

“I think users will probably go through the same understanding that I have, which is that it’s a sign of the times.”

Average revenue per user came in at $6.87, ahead of the $6.50 analysts expected, suggesting Reddit is squeezing more money from the audience it keeps.

Reddit’s data-licensing revenue, which includes deals with OpenAI and Google, rose 35% to $48 million. Huffman said the company remains “in negotiations” with Google over renewing that agreement.

The company also disclosed it extended cloud deals with Amazon Web Services and Google through 2029, committing to spend $880 million and $580 million, respectively, over three years.

The stock had already fallen about 44% this year before Friday. Pinterest slid more than 7% the same morning after issuing its own weak forecast.

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