SAN FRANCISCO – Reddit shares suffered their worst-ever rout after the social media company failed to announce any new data licensing agreements in its latest earnings report, disappointing investors who are hoping to see a shift in revenue streams.
Reddit’s ads business is the company’s main source of revenue, but investors increasingly are hoping to see the mix shift to data deals for artificial intelligence training.
The company’s repository of user posts has made it a popular place for marketers to reach consumers in online communities where they’re already discussing a particular topic or company.
That library has also drawn interest from AI firms seeking new training data, and Reddit has secured licensing deals with OpenAI and Alphabet’s Google worth hundreds of millions of dollars.
Reddit is already exploring a new potential deal with Google, Bloomberg reported last September, though the company didn’t announce a new arrangement on July 30 as some analysts had hoped.
Reddit is actively “talking to our partners” and “thinking very consistently about this,” chief operating officer Jen Wong said in an interview.
Chief executive officer Steve Huffman, speaking on a call with investors, said the data licensing opportunity is “an expanding marketplace” that goes beyond Google and OpenAI. He declined to comment on the status of new agreements.
The shares plunged 21 per cent on July 31 to close at US$140.67, their steepest single-day drop since the company went public in 2024. The stock has declined 39 per cent so far this year.
As Reddit negotiates new deals, it’s thinking not just about licensing fees, but also how to bring new users to its products. For example, when a chatbot supplies an answer drawn from Reddit data, executives want to be able to show users that Reddit is the source of the information and direct them to the site.
“The landscape has changed so much over the last couple of years,” Wong said. “We want to be very thoughtful here on how to maximise value.”
The share drop overshadowed a revenue forecast for the current quarter that beat Wall Street estimates.
Revenue in the period ending in September will be US$860 million (S$1.1 billion) to US$870 million, Reddit said on July 30 in a statement, higher than the average analyst estimate of US$829.4 million, according to Bloomberg-compiled data.
Second-quarter sales also surpassed expectations, jumping 61 per cent to US$805 million, driven mostly by advertising.
The company reported 130 million daily active users – in line with analysts’ expectations. Huffman said in a letter to shareholders that the company’s top priority is to increase this user base.
During the call with investors, Huffman was pressed on user growth potential. Analysts expressed concern about the company’s ability to continue to scale its US-based community, particularly in the face of volatile conditions around Google search traffic that has historically driven users to Reddit.
“We’re focused on what we can control,” Huffman said during the call.
Wong said in an interview that many shifts in the search landscape “are not visible to us,” and that the company is focused on expanding the share of users who come to Reddit directly.
Meanwhile, Reddit has seen growth abroad. The company’s international revenue, while just over 20 per cent of its total business, was up 84 per cent from a year earlier, a sign that Reddit is seeing success in an effort to broaden its list of advertising partners.
“We’re becoming much more diversified,” Wong said. “It’s great for resiliency. It’s great for competition.”
Wong said that Reddit has seen a 70 per cent increase in advertisers on its platform since last year, with growth being driven by midsize marketers. That’s a welcome development; a quarter of the company’s 2024 revenue came from just 10 large advertisers.
As the advertising dollars continue to flow in, Reddit has for the first time over a 12-month period generated US$1 billion in free cash flow, Wong said.
She added that the cash will allow the company to continue to invest in the core business, explore merger and acquisition opportunities, and lure technical talent. BLOOMBERG
