Reddit shares suffered a devastating blow on Friday, plunging 30.44% to close at $90.15 following a stark warning from CEO Steve Huffman. The platform’s leadership cautioned that Google’s expanding suite of AI-powered search features is aggressively cutting into referral traffic and threatening to shrink the social media platform’s active user base.
The dramatic market selloff occurred immediately after the company posted otherwise robust third-quarter financial results, which were ultimately overshadowed by a notably weaker-than-expected revenue forecast for the upcoming quarter.
For years, Reddit has built the foundation of its organic reach and discovery around search engines, particularly Google. Millions of internet users historically discovered niche discussions, troubleshooting advice, and community conversations by typing queries into Google and clicking through to the platform. However, the rise of artificial intelligence in search is fundamentally altering that ecosystem. Visitors are increasingly finding the answers they seek directly on Google’s search results page via AI-generated summaries and conversational modules, meaning they never have to click through to Reddit itself.
This shifting dynamic places intense pressure on the digital advertising business model that has successfully turned Reddit into one of the internet’s fastest-growing publicly traded companies. Because fewer users are arriving via external search referrals, the top-of-funnel acquisition of new participants—as well as the re-engagement of existing members—is facing unprecedented headwinds.
Before the warning triggered a panic among investors, Reddit’s third-quarter figures initially presented a picture of robust financial health. Total revenue for the quarter climbed 53% year over year to reach $895 million. The company’s core economic engine, advertising revenue, expanded by 54% to hit $847 million. Meanwhile, net income surged to $283 million.
Diluted earnings per share, a critical metric that measures company profit attributable to each share while accounting for potential equity dilution, came in at $1.40. This represented a 75% increase compared to the same period a year earlier, comfortably beating the $1.33 consensus estimate compiled by Wall Street analysts.
Despite the strong financial outperformance, the underlying audience metrics told a more troubling story. Reddit reported 130.3 million daily active unique visitors during the quarter. While this represented a 12% increase year over year, it fell short of the roughly 134 million daily active users that analysts had anticipated. More alarmingly, user engagement inside the United States actually contracted, with daily active visitors falling 2% to 50.7 million. This domestic dip provided Wall Street with immediate ammunition to question whether the platform can maintain its trajectory in its most lucrative market.
CEO Steve Huffman delivered the sobering warning regarding search traffic during Thursday’s earnings call with investors and analysts. He explained that Google search referrals had dropped by more than one million on average every single week throughout October, with the downward momentum accelerating rapidly toward the end of the third quarter. Huffman warned that if this erosion continues at its current pace, Reddit’s total daily active user count could decline by a low double-digit percentage in the fourth quarter, shrinking down from its present baseline of roughly 130 million users.
Huffman pointed directly at Google’s AI Overviews and AI Mode as the primary culprits. These features generate direct answers, syntheses, and summaries directly inside the search interface. Instead of directing users to external web properties to find specialized information, Google increasingly provides immediate gratification on its own page, relegating traditional blue-link search referrals further down the page or eliminating the need for them entirely.
When directly asked on the call whether these technological changes were explicitly responsible for Reddit’s declining search traffic, Huffman confirmed that the AI features had expanded aggressively across both domestic and international markets. Emphasizing the adversarial nature of the traffic shift, he told investors that AI search modes do not drive inbound traffic for Reddit, nor do they drive traffic to any other web property as far as he understands.
This dynamic creates a deeply awkward and complex dilemma for Reddit, and arguably for the broader digital publishing and media ecosystem at large. While internet users can still search for discussions hosted on Reddit, Google’s search result layout increasingly allows individuals to consume information extracted from those exact conversations without ever visiting the platform or viewing the advertisements displayed on its pages. Because search referrals have historically acted as a primary conduit for bringing back dormant users, fewer inbound clicks directly impair both new-user acquisition and long-term platform engagement.
To combat this structural threat to its traffic pipeline, Reddit is actively exploring strategic pivots. The company is moving toward prioritizing a primarily logged-in user experience, which would mandate that individuals sign into an official account before they are allowed to access the vast majority of the platform’s content. Reddit plans to initiate testing for this restrictive model in select international markets outside the United States during the course of the fourth quarter.
This defensive posture also intersects heavily with Reddit’s lucrative, yet complicated, relationship with the broader artificial intelligence industry. In February 2024, Reddit made headlines by signing a reported $60 million-a-year data licensing agreement with Google. That pact gave the search giant preferential access to historical and ongoing Reddit discussions to train its proprietary AI models. Just months later, the company inked a similar partnership agreement with OpenAI, permitting the creator of ChatGPT to ingest Reddit content while simultaneously granting Reddit access to OpenAI’s underlying technological tools.
These commercial agreements successfully transformed Reddit’s massive, decades-long archive of human conversation and community knowledge into a high-margin monetization stream sold directly to AI developers. However, the irony has not been lost on market observers: the exact AI-powered search engines and large language models that benefit from consuming Reddit’s data are simultaneously undercutting the platform’s web traffic by answering user queries independently. Compounding these friction points, Reddit has also begun tightening access to its public data, curbing RSS feeds, and restricting public API access to shut down unauthorized AI scrapers—moves that have frequently drawn sharp criticism from long-term platform users and community moderators.
The cumulative effect of the weaker guidance, traffic warnings, and broader tech sector sentiment has battered Reddit’s stock value. The equity has now lost roughly 44% of its value over the course of a single week, with Friday’s steep 30.44% plunge wiping out billions in market capitalization. Trading at $90.15, the stock sits at a dramatic discount compared to the valuations it commanded just days prior.
The technical outlook on Wall Street offers little immediate comfort to shareholders hoping for a rapid rebound. Reddit’s 50-day exponential moving average, a closely watched trend indicator that places greater mathematical weight on recent price action, currently hovers near $149.80. Meanwhile, its longer-term 200-day moving average sits around $162.12. With the shorter-term 50-day average having recently slipped below the 200-day average, the chart has formed a classic "death cross"—a widely recognized bearish technical signal typically associated with extended downward market trends.
At its current price of $90.15, Reddit shares would need to rally by approximately 66% to 70% merely to retrace their steps back to the 50-day moving average. Such a recovery would only bring the stock price back to its baseline short-term trend line without erasing the technical damage of the death cross itself. With both major moving averages positioned far above the current trading range, a swift return to previous valuation levels appears increasingly challenging in the near term as the platform navigates the shifting currents of AI-dominated internet search.
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