Reddit shares suffered their worst single-day decline since the company went public in March 2024, after second-quarter earnings released this week showed no new artificial intelligence data-licensing agreements and slower-than-expected growth in US daily active users, according to Yahoo Finance. The stock fell sharply in after-hours and next-day trading as investors reassessed the sustainability of one of Reddit’s fastest-growing revenue streams.
The selloff erased billions of dollars in market value and stood out as the steepest drop the company has posted since becoming a public company roughly two and a half years ago.
What spooked investors
Reddit’s stock had been buoyed for much of the past two years by a string of licensing agreements that let large AI developers, including Google and OpenAI, train and ground their models on Reddit’s vast archive of user-generated conversations. Those deals turned a previously underappreciated revenue line into a major growth story for Wall Street, with analysts treating Reddit as one of the clearest corporate beneficiaries of the AI boom.
That narrative took a hit this quarter. Executives did not announce any new licensing partnerships, and without a fresh deal to point to, investors were left questioning whether the existing agreements represent a one-time re-rating of the business rather than a repeatable growth engine. The silence on new AI partnerships came at a moment when competition for training data has intensified, with other platforms and publishers also striking similar arrangements.
US user growth falls short
Compounding the disappointment was a softer-than-expected reading on US daily active unique users, a metric closely watched by analysts because American users are typically far more valuable to advertisers than users elsewhere. Even though Reddit’s total global user base and international growth held up reasonably well, the US figure came in below Wall Street’s forecasts, raising concerns about domestic engagement and the durability of the platform’s core advertising business.
Reddit has leaned on strong US ad demand to offset periods of slower international monetization, so any sign of deceleration in that specific metric carries outsized weight with investors who model the company’s advertising revenue largely off American usage.
A pattern investors have seen before
This is not the first time a Reddit earnings report has triggered a sharp reaction tied to concerns about traffic and AI. The company has previously faced questions about how AI-generated search summaries and chatbot answers could reduce the need for users to click through to Reddit threads directly, potentially denting both traffic and ad impressions even as licensing revenue from those same AI companies grows.
Analysts have repeatedly flagged the tension at the heart of Reddit’s AI strategy: the same companies paying Reddit to license its data are also building products that could reduce the incentive for users to visit Reddit itself.
That tension appears to be resurfacing as a central theme for investors evaluating the stock, particularly as the pace of new licensing announcements slows.
Broader market context
The drop comes amid a broader reassessment across markets of which companies are genuine long-term beneficiaries of AI spending versus those whose gains reflect temporary enthusiasm. Investors have grown more selective in recent months, rewarding companies that can show durable, repeatable AI-driven revenue while punishing those where growth appears to be plateauing. That same scrutiny has shaped views elsewhere in the market, including arguments that some AI-linked stocks remain undervalued relative to their fundamentals — a case Morningstar recently made in its analysis of Nvidia.
For Reddit, the challenge now is convincing investors that its AI licensing business can keep expanding rather than plateau after an initial wave of deals, while also demonstrating that its core US user base remains healthy enough to support advertising growth on its own.
What comes next
Company executives are likely to face pointed questions from analysts in the coming weeks about the pipeline for new AI partnerships and what steps management is taking to reaccelerate US user engagement. Until Reddit can point to new licensing agreements or a rebound in domestic usage figures, analysts say the stock may remain under pressure, with investors wary of paying a premium multiple for growth that has yet to be proven repeatable.
Reddit’s next opportunity to reset the narrative will come with its third-quarter results later this year, when investors will be watching closely for any signs of renewed momentum in both AI licensing and core user metrics.
