Reddit Beat Earnings by a Lot-So Why Is RDDT Down 23% Today?

Strong results were overshadowed by Google and traffic fears

Reddit delivered second-quarter numbers that should have impressed investors. Revenue reached $804.9 million, up 61.1% year over year, but shares still fell sharply after trading from a $156.87 high to a $135.22 low. Instead of rewarding the quarter, the market turned its attention to a different risk: whether Google could disrupt the traffic and monetization trends behind Reddit's growth.

The trigger was management's comment that search referrals had become "choppy." That remark pushed investors to focus on two unsettled issues at once: how AI-powered search results may change click-through traffic, and how Reddit's data-licensing negotiations with Google may evolve. In that moment, uncertainty mattered more to the market than the quarter itself.

That does not look like a collapse in Reddit's underlying business. It looks more like a reset in how much investors are willing to pay for future growth when a key distribution channel feels less predictable. Bulls can still point to strong third-quarter revenue guidance and supportive analysts, including Truist's buy rating and $275 price target. Bears focus on traffic dependence. Today's sell-off suggests the market is leaning toward the bearish scenario before the evidence is fully settled.

Why "choppy" search referrals triggered a much bigger reaction

Reddit fell 23.2% in the morning session after CEO Steve Huffman described search referrals as choppy. On its face, that sounded more like a near-term headwind than a full forecast. But investors quickly expanded it into a broader chain of concern: if AI summaries reduce clicks from Google, user acquisition could slow, engagement could weaken, and ad growth could come under pressure.

That reaction made sense given the timing. Recent reports that Reddit was reevaluating its Google data deal left investors primed to worry that the company's relationship with Google was becoming less stable. When Huffman later said referrals were choppy, many traders treated it as evidence that the risk was more than temporary.

The bull case, however, still rests on the current operating data. Reddit's quarter was backed by advertising demand, higher pricing and user growth, and management guided to third-quarter revenue of $860 million to $870 million, above consensus. That is not what a broken monetization engine looks like.

At a market cap of $27.08 billion, the selloff looks more like a fear premium than a full re-rating of Reddit's business quality. The key question now is whether this is a temporary narrative break or the start of a more lasting earnings problem.

What would repair the stock's narrative from here

At 32.72x P/E, Reddit is still priced for continued belief, not just another clean quarter. For the stock to recover, investors need proof that the Google-related fears were overdone rather than confirmation of a new operating reality.

The two issues management has to address

The first is whether search referrals had become "choppy" was a one-quarter disruption rather than a structural break in discovery from Google. The second is whether Google and Reddit can reach a clear path forward on how Google pays for Reddit's data.

Bulls can live with some uncertainty on licensing. What they are less likely to fund at a premium is a relationship that looks increasingly fragile or dependent on constant concessions.

The clearest signals to watch next

• Whether search referral traffic stabilizes over the next quarter
• Whether ad demand, pricing, and user growth remain firm
• Whether management provides clearer language around the Google data relationship
• Whether future results show that the current quarter's referral softness was temporary

If those signals stay healthy, the bear case begins to look like an overreaction. If they weaken together, the market's caution will look more justified. For now, the longer-term asset remains what founder Steve Huffman described as 21 years of community-driven conversation. The near-term question is whether that asset can hold value while the market decides how serious the Google risk really is.