Reddit Stock Plummets Despite Strong Q2 Earnings and Guidance Beat

Reddit (RDDT) shares plunged nearly 23% in recent trading despite the company reporting second-quarter results and forward guidance that significantly surpassed analyst expectations. The sharp sell-off indicates investors are looking past the strong current performance, focusing instead on concerns about user growth headwinds and the absence of new, high-margin AI data licensing agreements.

Strong Results Fail to Impress Market

On paper, Reddit delivered a robust second quarter. The company announced strong growth across key metrics, signaling health in its core advertising business.

• Q2 Revenue: $805 million, a 61% year-over-year increase, beating the $731 million consensus estimate.
• Q2 EPS: $1.25, topping the estimated ~$0.95 by approximately 32%.
• Daily Active Uniques (DAUq): 130.3 million, up 18% from the prior year.
• Advertiser Growth: A 70% year-over-year increase.

Furthermore, the company's outlook for the third quarter came in ahead of Wall Street forecasts. Reddit guided for Q3 revenue of $860 million to $870 million, above the $829 million consensus, and projected adjusted EBITDA well ahead of expectations.

Focus Shifts to AI Deals and Google Traffic

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The market's negative reaction was driven by what was absent from the report. The primary disappointment was the lack of any new AI licensing deals, which investors had priced in as a significant near-term catalyst. Revenue from data licensing is included in its "Other revenue" category, which grew a modest 24% to $43 million.

Compounding these concerns were mixed signals on user growth. While annual DAUq growth was solid, the company disclosed a sequential slowdown in the U.S. and described a "choppy search referrals" environment. Management specifically noted that Google’s AI Overviews began having a "broader impact" late in Q2, a headwind expected to continue into the third quarter.

Analysts Divided on Outlook

The earnings report highlighted the central tension in Reddit's investment case: the risk to its traffic from Google's dominance in search versus the opportunity to monetize its vast trove of human-generated data for AI models. The company is actively pushing mobile web visitors to its app, a strategy that may boost long-term engagement but could pressure DAUq metrics in the short term.

Wall Street analysts were divided on the results. DA Davidson reiterated its Buy rating and $200 price target, arguing that strong growth in Average Revenue Per User (ARPU) is offsetting the traffic headwinds. In contrast, JPMorgan, expressing more caution, maintained its Neutral rating and cut its price target to $185 from $200.