Reddit's $978M Trading Day Overshadowed by Legal Battle and Zero-Click Search Threat

On June 27, 2025, Reddit (RDDT) experienced a trading volume of $978 million, ranking 76th in the day's stock market activity. The stock price of Reddit (RDDT) decreased by 0.61%.

Reddit is currently embroiled in a legal battle that could significantly impact its future. A securities lawsuit filed against the company alleges that Reddit misled investors about the impact of Google's AI Overviews, which have led to a surge in zero-click searches. These searches provide users with instant summaries directly in Google's search results, potentially diverting traffic away from Reddit. The lawsuit claims that Reddit's executives downplayed the risks posed by this trend, assuring investors that it was no different from past algorithm changes and posed no long-term risk to traffic or ad revenue.

The lawsuit, Tamraz v. Reddit, Inc., filed on June 18, 2025, alleges that Reddit misled investors from October 2024 to May 2025. During this period, Reddit reported slowing daily active user (DAU) growth, a key metric for ad revenue. The stock price plummeted 17.8% since January, and analysts downgraded the stock in late May, triggering further declines. The lawsuit hinges on proving that Google's AI changes caused material harm to Reddit's business, with evidence showing that zero-click searches now account for nearly 27% of Google queries in the U.S. This trend has led to a significant drop in search traffic for platforms like Reddit, which rely heavily on logged-out users for ad revenue.

The lawsuit argues that Reddit's claims about stable user intent were misleading. While searches for the term Reddit increased, the rise reflected users seeking answers via Google's summaries, not visits to the site itself. This disconnect between search volume and actual traffic undermines Reddit's growth narrative. The validity of Reddit's disclosures is also in question, as internal documents reportedly show executives were aware of the zero-click trend's severity but continued to tout user growth as robust. This raises concerns about the sustainability of Reddit's financial forecasts, which rely on new AI ad tools and efforts to convert logged-out users.

Investors should consider the lawsuit's timeline, as the lead plaintiff deadline is August 18, 2025. A strong lead plaintiff could pressure Reddit to settle, potentially depressing shares. Additionally, Reddit's reliance on Google traffic poses a significant risk, and until the company proves it can diversify its traffic sources, its growth remains speculative. At a forward P/E of approximately 30, the stock demands flawless execution—a high bar given the current headwinds. Investors are advised to hold or sell unless Reddit demonstrates a credible plan to thrive in a zero-click world, as the risks are material and the legal battle underscores broader challenges in the AI era.