Reddit’s Earnings Report Reveals a Complicated Relationship with Google
Reddit’s second-quarter earnings report has sent shockwaves through the tech industry, with the company’s stock plummeting 23% despite beating Wall Street expectations. At first glance, the numbers look impressive: revenue climbed 72% year-over-year to $500 million, and adjusted EBITDA reached $167 million, up from $39 million a year ago. However, a closer look at the data reveals a more complex picture.
User Growth Slows Amid AI-Driven Search Summaries
The growth of Reddit’s global daily active unique users (DAUq) increased by 18% year-over-year, a modest improvement from 17% growth in the first quarter. However, the problem lies in where this growth is coming from. The slowdown among U.S. users is particularly concerning, as they generate far more revenue. Reddit reported average revenue per U.S. user of $11.85, compared with just $2.26 internationally. This means each slowing U.S. user matters roughly five times as much to the business as an international visitor.
Logged-In User Growth a Cause for Concern
Surprisingly, the weakest number may be logged-in users. Growth held at just 1% for the second straight quarter, down from 12% one year ago. On paper, logged-out users look like a bright spot after growing 27%. However, they’re much less valuable. Logged-in users create posts, comment, subscribe to communities, and develop habits that advertisers value. Logged-out visitors often arrive through search, consume a single page, and leave.
Reddit appears ready to stop highlighting this distinction. Management disclosed it plans to phase out reporting logged-in and logged-out user figures in future quarterly reports, reducing investors’ visibility into one of the platform’s most important engagement metrics.
The Impact of AI-Powered Search Summaries
The relationship between Reddit and Google is becoming increasingly complicated. Google licensed Reddit’s content to improve AI-generated search summaries. Those summaries frequently answer users’ questions by drawing from Reddit discussions without requiring users to click through to Reddit itself. The arrangement generates licensing revenue, but it may also reduce opportunities to convert casual visitors into engaged, logged-in users who ultimately become more valuable advertising customers.
This is a difficult tradeoff for a platform whose long-term value depends on building an active community rather than simply supplying data to someone else’s AI. Reddit is rethinking its Google partnership, but the impact of AI-powered search summaries on user growth remains a pressing concern.
Advertising Business Remains Healthy
Despite the challenges facing user growth, Reddit’s advertising business remains healthy. Revenue from advertisers continued expanding, driven largely by small and medium-sized businesses, according to management. This diversification is encouraging, although several Wall Street analysts have previously noted that smaller advertisers can be more sensitive to economic slowdowns than large global brands.
In short, Reddit’s financial results still look strong today. But investing is about where a business is heading, not where it has been. The numbers beneath the surface point to slowing growth among Reddit’s most valuable users, rising dependence on lower-value logged-out traffic, and less transparency around the very metrics investors need to evaluate the trend.
For long-term investors, that’s the risk worth watching. It’s not about whether Reddit beat earnings estimates by a few million dollars, but whether AI is quietly eroding the engagement that made the platform valuable in the first place.
