Reddit stock plunges 30% as Google's AI search threatens traffic and user growth
Reddit shares plunged 23% after the company warned that Google's AI powered search features were hurting referral traffic and could lead to a decline in daily active users. Pinterest also fell after issuing a weaker revenue outlook, as pressure on European cross border sellers weighed on its business and growth expectations.
Reddit's stock price plummeted by 30% on Friday as the company expressed concerns over Google's increasing use of artificial intelligence in search. Google's AI-powered search features, such as AI Overviews and AI Mode, are altering how users find information online, potentially diminishing the need to visit individual websites for answers. This shift threatens Reddit's traffic and user growth, according to the warning.
The warning raised questions about the impact of AI-driven search on traditional websites that rely on Google for audience reach. Reddit disclosed that its total daily active unique visitors could decline by a double-digit percentage, potentially falling from around 130 million in the fourth quarter, if referral traffic continues to weaken.
The decline in traffic is adding pressure to Reddit's stock, which had already dropped approximately 44% this year. JPMorgan analysts have attributed Google's expansion of AI-powered search features, along with changes to the ranking of machine-translated content, to the decline in search traffic. Similarly, Piper Sandler analysts suggested a reset in expectations for Reddit's near-term outlook, citing clouded circumstances.
Despite the traffic concerns, Reddit has extended its cloud services agreements with Amazon Web Services and Google through 2029. Under these agreements, Reddit has committed to spending $880 million and $580 million, respectively, over three years. Pinterest also faced investor concerns, with its shares falling 7.86% to $18.16 after the company issued weaker-than-expected fourth-quarter revenue guidance.
The image-sharing platform reported third-quarter revenue of $1.17 billion, falling short of analysts' estimates of $1.21 billion. Pinterest's fourth-quarter revenue guidance of $1.425 billion to $1.475 billion also missed Wall Street expectations.
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