Reddit stock plunged 23% on July 31, 2026, despite the company beating second-quarter earnings estimates, as investors focused on CEO Steve Huffman’s warning about “choppy” search referral traffic amid growing concerns about Google’s AI integration eating into the platform’s traffic.
The social media company reported earnings per share of $1.25, beating analyst expectations of $0.95, and revenue of $805 million, well ahead of the $730 million consensus estimate. Second-quarter revenue grew 61% year-over-year, marking the eighth consecutive quarter of more than 60% growth as Reddit’s advertising business expanded internationally and improved its ad-targeting engine.
Yet in an investor letter accompanying the earnings, Huffman acknowledged that “search referrals were choppy in the quarter, and traffic was more volatile later in the quarter.” This single phrase triggered the sharp selloff, with shares dropping from around $179 to $136 by midday Friday, according to reporting from Barron’s and AOL.
The concern stems from Reddit’s reliance on Google to drive user traffic. In 2024, Reddit signed a $60 million-per-year content licensing deal with Google to train the search giant’s AI models. However, as Google has deployed AI Overviews—automated summaries that answer user queries directly—publishers including Reddit, USA Today, and Politico have seen referral traffic decline. Between June 2025 and June 2026, USA Today’s Google referral traffic fell by nearly half, according to data cited by the Wall Street Journal and reported by multiple outlets including CNBC and NY Post.
The traffic concerns have become acute enough that Reddit is considering whether to renew or restrict Google’s access to its content. On the earnings call, Huffman was vague about the company’s options. “In AI overviews, we have still yet to find that win-win, but we’re still collaborative and looking for that,” he said, noting there was “no simple binary decision here.”
Adding to investor worry: Reddit’s U.S. daily active users dipped slightly to 53.2 million in Q2 from 53.5 million in the first quarter, according to TechCrunch’s reporting of the earnings. While global users jumped 18% year-over-year to 130.3 million, the U.S. slowdown signals that AI-driven search changes may already be suppressing growth in Reddit’s largest market.
Despite the stock decline, Reddit’s financial performance remained robust. Net income surged to $253 million from $89 million a year earlier, and the company issued guidance that beat expectations: third-quarter revenue of $860 million to $870 million (versus analyst estimates of $828 million) and adjusted earnings before interest, taxes, depreciation, and amortization of $385 million to $395 million (above the $368 million consensus).
The pattern mirrors other recent tech earnings where strong results failed to lift stock prices. Meta reported a 28% increase in year-over-year revenue on July 29 but saw its stock sink due to weaker forward guidance and high AI spending. Similarly, Roblox stock plunged 29% after Q2 earnings beat but weak guidance, and KLAC stock fell 5% despite Q4 earnings beat as guidance concerns emerged, showing that investors are increasingly punishing forward-looking uncertainty even when current results exceed expectations.
Reddit’s challenge is to convince the market that its business can thrive even as Google’s AI products reshape how users discover content. On the call, Huffman argued that Reddit’s community-driven model would remain attractive. “Reddit is communities and conversation. Communities are universal,” he said. “It’s a matter of revealing that” to users in the U.S. market. For now, the market remains unconvinced, with the stock down 23% on the day and the company reporting Q2 earnings amid uncertainty over its Google deal.
Sources
- CNBC — Q2 earnings data, CEO commentary on search referrals, guidance, and Google negotiations
- TechCrunch — Q2 earnings analysis, U.S. DAU decline, investor concerns, and CEO quotes
- Barron’s — Stock price decline to $148.45 and year-to-date context
- AOL — Stock price at $136.32 on July 31
- Wall Street Journal — Google referral traffic declines at USA Today and other publishers
- NY Post — Google search traffic declines and AI impact on publishers
