Reddit stock suffers record 29% single-day crash
Google AI search pressures Reddit's referral traffic
Strong earnings fail to offset shrinking audience concerns
Reddit stock crashed 29.2% on Friday, October 30, recording its worst one-day decline since going public in 2024 as investors reacted to a sharp deterioration in search traffic despite the company's impressive earnings growth.
According to Reuters, Reddit warned that search referrals declined by more than one million per week on average during October. Management identified Google's expanding AI-powered search features as a major contributor to the problem.
Shares closed at $91.73, down from $129.60 the previous day, as investors questioned whether Reddit could maintain its audience without relying so heavily on Google.
Reddit Loses More Than 1 Million Weekly Search Referrals
The warning came during Reddit's third-quarter earnings presentation, when CEO Steve Huffman acknowledged that search-driven traffic had deteriorated throughout the quarter.
Google's AI Overviews and AI Mode increasingly provide answers directly within search results, potentially reducing the need for users to visit websites containing the original information.
For Reddit, that threatens an important source of new visitors.
The company reported 130.3 million daily active unique visitors during the third quarter, representing 12% annual growth. However, US daily users declined to 50.7 million, down approximately 2.5 million from the previous quarter.
Management warned that total daily visitors could decline by a low-double-digit percentage during the fourth quarter if current search-referral trends continue.
That would represent a substantial reversal for a platform whose user-generated discussions frequently appear in search results.
Coinpaper's earlier Reddit earnings report documented the initial 18% after-hours decline, before Friday's selloff intensified.
The latest closing price confirms that investors reacted even more aggressively once regular trading resumed.
Reddit Revenue Jumps 53%, but Wall Street Looks Beyond Earnings
The selloff contrasts sharply with Reddit's latest financial performance.
According to the company's official earnings release, third-quarter revenue increased 53% to $895 million, while net income reached $283 million.
Advertising revenue rose 54% to approximately $847 million, and diluted earnings per share climbed to $1.40.
Despite those results, management forecast fourth-quarter revenue between $1 billion and $1.03 billion, below Wall Street expectations of approximately $1.05 billion.
The disappointing outlook reinforced concerns that weaker search referrals could eventually affect advertising growth.
The situation also exposes an unusual contradiction in Google's AI strategy.
While AI-powered search is potentially reducing traffic to Reddit, Alphabet continues investing heavily in technology intended to improve its own products.
Coinpaper recently examined Google's $51 billion spending during the third quarter, when infrastructure investments exceeded operating cash generation.
Google Search revenue also grew more slowly than in the previous quarter, suggesting the company's AI transition carries financial uncertainties of its own.
Reddit Plans Login Requirements to Reduce Google Dependence
Reddit is now considering a major change to how people access its platform.
Huffman outlined plans to test requiring visitors to sign in before viewing more content, beginning with selected international markets.
The strategy would encourage users to build a direct relationship with Reddit rather than repeatedly arriving through Google Search.
However, mandatory logins also introduce risks. Visitors who only want a quick answer may leave rather than create an account.
Reddit's logged-in and app users already account for more than 80% of its monetization, according to management, making those audiences particularly valuable.
The company also maintains commercial relationships with AI developers, including Google, which pays for access to Reddit data.
But licensing revenue does not necessarily compensate for lost advertising opportunities if fewer people visit the platform directly.
The broader implications extend beyond Reddit.
Google's evolving AI search products could affect publishers, review websites and other businesses dependent on search referrals, even when their content remains visible in Google's results.
For Reddit, the next test is whether stronger direct engagement can offset declining search traffic without damaging user growth.
Until that becomes clear, Friday's record stock collapse suggests investors are questioning not Reddit's current profitability, but how reliably its audience can continue expanding.
