Reddit reported robust financial results for its second quarter of 2026, with revenues reaching $805 million, a 61% increase year-over-year, and net income soaring 183% to $253 million. The company’s outlook remains positive, projecting revenues between $860 million and $870 million for the upcoming quarter, along with strong earnings before taxes. Despite these solid numbers that exceeded Wall Street expectations, Reddit’s stock experienced a sharp drop in after-hours trading, triggered by concerns over the impact of AI on traffic sources.

CEO Steve Huffman highlighted in a shareholder letter that search engine referral traffic had become "choppy" during the quarter, indicating increased volatility potentially tied to shifts in how users access Reddit content. This turbulence coincides with broader changes in search behavior driven by AI integration. Notably, Reddit has a content licensing agreement with Google, established in 2024 to assist in AI training. However, Google’s AI-generated summaries appear to be diverting users away from Reddit, raising questions about the future terms and renewal of this partnership.

User engagement metrics also showed mixed signals, particularly in the U.S. where daily active users slightly declined from 53.5 million in the first quarter to 53.2 million in Q2. During the earnings call, analysts pressed Reddit’s leadership on the risks posed by AI to its user base and growth, especially in light of concerns that AI-powered search might reduce logged-out traffic and subsequent log-ins. Huffman emphasized Reddit’s unique value as a platform built on communities and conversation, suggesting these human elements would sustain user loyalty despite AI disruptions.

When discussing the ongoing relationship with Google, Huffman was circumspect, noting the partnership predates formal data licensing deals and that there isn't a simple, binary outcome ahead. He assured investors that Reddit aims to optimize value from its collaborations while navigating the evolving AI-influenced digital landscape. While Reddit’s commercial health appears strong, uncertainties around AI’s influence on referral traffic and user engagement continue to trouble investor sentiment.