Reddit announced a solid second quarter but unsettled investors by indicating in an investor letter that search engine traffic had become “choppy.”

The firm’s total revenue reached $805 million, marking a 61% increase from the same quarter last year, while net income soared to $253 million, a rise of 183%. These figures exceeded Wall Street predictions. Additionally, the company anticipates revenue to land between $860 million and $870 million in the next quarter, along with robust earnings before taxes, surpassing expected guidance.

Typically, informing investors of improved future results would lead to a stock increase. Instead, the stock dropped over 10% in after-hours trading.

The likely reason was CEO Steve Huffman’s caution in a separate letter to shareholders. “Search referrals were inconsistent during the quarter, and traffic was increasingly volatile later on, but the overall outlook remains steady: the business operations are strong,” he noted.

AI is evidently transforming the search engine environment — and investors appear to worry that Reddit’s traffic could decline.

In 2024, Reddit entered into an agreement to supply its content to Google for AI training purposes. However, Google’s implementation of AI summaries seems to be drawing audience share away from Reddit, and the platform has suggested uncertainty about renewing its collaboration with the search leader.

Another concern has been whether Reddit’s audience is expanding in desirable areas. While global users are on the rise, the platform experienced a slight drop in daily active unique U.S. users — going from 53.5 million in Q1 to 53.2 million.

During Thursday’s earnings call, several analysts aggressively probed the effect of AI on Reddit’s audience.

“I don’t want to overemphasize this, but your stock has fallen sharply because investors sense you have a — to be frank — a user issue, particularly in the U.S.,” stated one Wall Street analyst.

“People are observing the daily metrics and saying that the logged-out traffic is likely to be pressured because as searches pivot to AI, you won’t receive referrals, making it more difficult for users to convert from logged-out to logged-in, which reflects what you’re experiencing,” the analyst elaborated, inquiring, “Do you envision a scenario where you aren’t licensing data to Google and OpenAI next year?”

Huffman expressed confidence that the human element of Reddit would keep drawing users. “Reddit revolves around communities and conversations. Communities are universal, so we maintain content in the U.S. for all audiences, and we’re working on showcasing that. We’re making headway in that direction,” Huffman stated.

Regarding Google, Huffman was less specific. “Our partnership with them actually started before the formal data licensing agreements,” he commented. “I don’t believe there’s a straightforward outcome… we will ensure we’re maximizing Reddit’s value.”