Reddit sold its data to Google for AI training. Now Google's AI is eating Reddit's traffic.

Reddit Beat Earnings and Still Fell 10%. The AI It Feeds Is Eating Its Traffic.

Reddit reported $805 million in second-quarter revenue, up 61% year over year, and $253 million in net income, up 183% 1. The company raised guidance above Wall Street expectations, projecting $860 million to $870 million in next-quarter revenue 1.

The stock dropped more than 10% in after-hours trading 1.

The reason is a structural paradox. Reddit licenses its conversation archive to Google and OpenAI for model training. Those same AI systems now generate answers directly, reducing the need for users to click through to Reddit. The data deals that pad the balance sheet are funding the technology eroding the referral traffic underneath it.

The Feedback Loop Behind the Stock Drop

In 2024, Reddit signed a contract to provide its content to Google for AI training purposes 1. The arrangement turned user discussions into a revenue stream separate from advertising. But Google's deployment of AI summaries now appears to be peeling audience share from Reddit, answering questions at the top of search results without requiring users to visit the original pages 1.

CEO Steve Huffman acknowledged the disruption in his letter to shareholders, describing search referrals as "choppy" during the quarter 1. He argued the broader business was healthy and that the commercial picture was unchanged 1.

Investors translated "choppy" immediately. If AI search is already disrupting referral patterns, every licensing dollar Reddit collects funds the capability reducing its advertising audience.

The US User Inflection

The concern deepened in the user metrics. Reddit's global user base kept growing, but US daily active uniques slipped from 53.5 million in Q1 to 53.2 million 1. The drop is 300,000 users on a base of 53 million. Small in absolute terms, but inflection points are about direction, not magnitude.

On the earnings call, an analyst pressed Huffman on what investors perceive as a US user problem. The analyst noted that logged-out traffic faces pressure as search shifts to AI, making it harder to convert casual visitors into registered users 1. That logged-out audience, which arrives from Google and represents the pipeline to registered accounts, is the segment most exposed to AI search disruption. If a summary answers the question on Google's page, the click to Reddit never happens.

The Renewal Cliff

The analyst ended with the question investors actually care about: "Do you see any world where you're not licensing data to Google and OpenAI next year?" 1.

Huffman was noncommittal. He noted that Reddit's relationship with Google predates the formal data licensing agreements and said he did not see "a binary outcome," adding that Reddit would ensure it was "maximizing the value for Reddit" 1.

That answer captures the bind. Renew the deal and Reddit keeps the revenue while deepening its reliance on the AI systems consuming its traffic. Walk away and it sacrifices a revenue stream that has become material to the financial story it tells Wall Street.

Huffman leaned on the human element, arguing that Reddit's community-driven content would keep it a destination regardless of how search evolves 1.

The Question for Every Platform

Reddit's quarter is a case study for any platform sitting on a repository of human conversation. The licensing revenue is real and growing. The guidance beat expectations. The stock still fell double digits because investors can see the loop: data deals fund AI capability, and each increment of AI capability reduces the incentive to visit the source. The deal looked like a windfall. It may also be a clock.