Reddit Sinks as Google's AI Shift Takes a Bite Out of Search Traffic. What's Next for RDDT Stock.

Reddit (RDDT) shares slipped sharply on Friday after the company reported a market-beating Q3, but its disappointing revenue guidance and accelerating decline in Google referral traffic spooked investors. 

The earnings release led Citizens to downgrade RDDT stock to “Market Perform,” highlighting a difficult question for shareholders: Can Reddit expand its advertising business as artificial intelligence (AI)-enabled search answers queries without sending users to the platform?

Including the post-earnings weakness, Reddit stock is down more than 60% versus the start of this year.

Google’s AI Shift Threatens Reddit’s Growth Engine

Reddit saw its U.S. daily active unique users decline by about 5% in Q3 compared to Q2, while management warned of a lower-double-digit percentage decline in the fourth. 

Google search referrals are falling by more than 1 million per week, according to Citizens’ data, threatening the flow of visitors who could eventually become regular, logged-in users. Analyst Andrew Boone also told clients that Google continues to crawl the platform rather heavily, but its AI Overviews and AI mode are sending fewer people back to the site. 

The financial implications could emerge gradually. Advertising revenue still came in up 54% year-over-year at $847 million, demonstrating strong monetization. Sustaining that momentum, however, may become more challenging if audience losses persist and Reddit must spend more to attract replacement users. 

Citizens Sees Reddit Stock as Fairly Valued

In his research note, Boone said the uncertainty surrounding user growth leaves the Reddit shares fairly valued. 

In Q3, the firm’s U.S. logged-out daily active uniques came in down 4% compared to last year — their first annual decline since 2022.

Citizens’ concern is that weaker traffic increases pressure to extract more revenue from existing users. Higher acquisition spending in 2027 could weigh on profitability, while traffic damage could complicate data-licensing renewals. 

Logged-in and app users already account for more than 80% of monetization. Any potential hit on that front, therefore, stands to weigh on RDDT’s business and its share price over time. 

Wall Street’s Consensus View on RDDT Shares

Heading into Oct. 30, Wall Street had a consensus “Moderate Buy” rating on RDDT stock with a mean price target of about $210. However, it’s reasonable to expect downward revisions as analysts bake in the company’s revenue guidance into their estimates. 

On the date of publication, Wajeeh Khan did not directly have a position in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.