Reddit shares slump after management warns of search traffic volatility despite strong earnings beat
Reddit Inc (NYSE:RDDT) shares fell about 21% on Friday morning after management warned of volatility in search traffic and raised concerns among investors about potential pressure from artificial intelligence-powered search tools, despite reporting second quarter results that exceeded Wall Street expectations.
The company reported Q2 revenue of $805 million, up 61% year-over-year and above analyst expectations of $730 million.
Earnings per share came in at $1.25, compared with the consensus estimate of $0.95, while net income reached $253 million, more than double the prior-year period.
Reddit's adjusted EBITDA rose 106% year-over-year to $343 million, representing 43% of revenue, while operating cash flow increased 135% to $262 million.
User growth remained strong on a global basis, with daily active uniques (DAUq) increasing 18% year-over-year to 130.3 million, while weekly active uniques (WAUq) rose 24% to 514.6 million.
However, US daily active users declined slightly sequentially to 53.2 million from 53.5 million in the prior quarter, contributing to investor concerns about domestic user growth.
Revenue growth was driven largely by advertising, which increased 64% year-over-year to $762 million. Other revenue rose 24% to $43 million.
Reddit CEO Steve Huffman highlighted the company's position as users increasingly seek human-generated content online.
"In an increasingly automated web, the value of real human perspective has never been higher. Reddit's commercial momentum reflects that," Huffman said in a statement.
"Crossing $1 million in revenue per employee and maintaining eight consecutive quarters of over 60% revenue growth shows the strength of our community model and the value we deliver to advertisers."
For the third quarter, Reddit forecast revenue of $860 million to $870 million, above Wall Street expectations of $828 million. Adjusted EBITDA guidance of $385 million to $395 million also exceeded analyst estimates of $368 million.
Despite the stronger-than-expected outlook, investors focused on comments from management regarding search traffic trends. During the company's earnings call, Huffman noted that Google search referrals became "choppy" later in the quarter, raising concerns that changes in search behavior could affect Reddit's visibility and user acquisition.