Oct 30 (Reuters) - Reddit shares tumbled 29% on Friday, marking their biggest single-day drop and hitting their lowest level in over a year, after the company warned that Google’s AI-powered search was hurting referral traffic and could shrink its user base.
The online discussion platform still appears in Google search results but is attracting fewer clicks, as users increasingly rely on the tech giant’s AI tools for direct answers.
“When more than a million search referrals a week disappear because Google’s AI answers the question itself, investors are no longer looking just at the next three or four months, but at how much of Reddit’s audience it will really own in the years ahead,” said Vitor Madeira, senior market specialist at Capital.com.
Reddit warned that its daily active unique visitors could fall by a low double-digit percentage in the fourth quarter if referral traffic kept declining.
If current losses hold, Reddit is set to lose more than $7 billion in market value and Pinterest about $900 million. The two stocks have fallen about 44% and 23%, respectively, this year through their last close.
Reddit has a 12-month forward price-to-earnings ratio of 19.03, compared with Snap’s 7.53 and Pinterest’s 8.48, according to LSEG data.
Separately, Reddit on Friday said it has extended its cloud services agreement with Google through 2029, committing to spend $580 million over three years.
At least 11 brokerages cut their price targets on Reddit, and at least 13 did so on Pinterest.
Seems to me the issue here is overall strategy.
The overall strategy seemed to have been foster discussion, then sell that content to AI scrapers and search engines while also collecting ad revenue.
Problem is, if the AI search engine scrapes the answer out of the discussion, they’ll often answer the user’s question and thus you won’t get the ad revenue from the click. And if you need to log in to see the discussion you’ll lose the ad revenue from search referrals.
In short- ‘we created a business letting others cannibalize the value out of our database and now we’re shocked there’s less value in our database’.
Reedits value was always in its community. When they started pissing off the community that vanished at which point all they had left was the data set so they sold that because they didn’t have anything else of value and now that ship has also sailed.
The way back for Reddit would be to get rid of the toxic leadership but they won’t do that so they’ll just spiral into irrelevance.