Reddit shares fell 23% following their second-quarter earnings report. While the company posted revenue of $500 million and adjusted EBITDA of $167 million, investors remain concerned about slowing user growth. Global daily active unique users increased by 18%, but the more valuable U.S. user base showed a much smaller growth rate.
The decline follows a shift in how users find information online. Artificial intelligence search summaries are increasingly answering questions directly, often without users clicking through to the original source. This pattern presents a challenge for platforms that rely on web traffic to build communities and sell advertising. While Reddit earns licensing fees from data partnerships, those deals may be reducing the number of casual visitors who convert into active, logged-in members.
Management indicated plans to stop reporting the split between logged-in and logged-out users in future quarters. This change creates less transparency for investors trying to track the health of the platform's core engagement. Logged-in users remain the primary source of revenue, yet their growth has remained stagnant at 1% for two consecutive quarters.
Despite these headwinds, the advertising side of the business performed well, particularly with small and medium-sized businesses. Investors must now decide if the current monetization of data outweighs the potential long-term erosion of user engagement caused by AI-driven search.