Reddit reported second-quarter revenue of $805M, a 61% year-over-year jump that beat analyst estimates. Yet the stock still fell in after-hours trading.
Earnings per share came in at $1.25, well above the 95-cent consensus. Net income climbed to $253M from $89M a year earlier. It was the eighth straight quarter of 60%-plus revenue growth.
The Google problem
Despite the strong financials, investors focused on one phrase from CEO Steve Huffman's shareholder letter: "Search referrals were choppy."
US daily active unique users slipped to 53.2M from 53.5M the prior quarter, even as global DAUq rose 18% year-over-year to 130.3M. COO Jen Wong attributed the US softness to "SEO headwinds" from changes in search algorithms that more than offset the company's user acquisition efforts.
The concern isn't just one quarter of volatility. Analysts have flagged that Google's AI-powered search overviews are reducing the click-through traffic that Reddit has historically relied on to land new users.
"In AI overviews, we have still yet to find that win-win, but we're still collaborative and looking for that."
Steve Huffman, Reddit CEO
Wong said product improvements are helping convert lower-engagement search visitors into loyal app users over time.
AI deals and ad diversification
Beyond search, investors had been hoping for a new data licensing announcement. Reddit's existing deals with OpenAI and Google worth hundreds of millions of dollars have made its user-post archive a valuable AI training asset. No new deal was announced Thursday, which disappointed some analysts.
Wong said Reddit is actively talking to partners and thinking carefully about how to maximize value, including ensuring people know when chatbot answers originate from Reddit content.
On the advertising side, the picture looks healthier. Advertiser count grew 70% year-over-year, with particular strength among mid-market, small and medium-sized businesses, and international advertisers.
International revenue was up 84% year-over-year, though it still represents just over 20% of total revenue. For Q3, Reddit guided revenue to $860M-$870M.
Reddit also crossed $1B in free cash flow over the trailing 12 months for the first time. Wong said that capital gives Reddit room to invest in its core business, pursue acquisitions, and recruit technical talent.
Average revenue per user hit a record $6.18 globally, up 36% year-over-year, signaling the ad engine is extracting more value from each visitor even as US user counts flatline.
The underlying monetization story is improving, but the top-of-funnel has Wall Street watching closely.
