2026-11-01

Reddit Stock Crashes 29% to Its Worst Day Since Its IPO - Why Google's AI Is Hammering RDDT for a Second Straight Quarter Despite 53% Revenue Growth

Written & reviewed by the TradeSmrt editorial team · 2026-11-01

In this article

What Happened
Why 53% Revenue Growth Didn't Protect the Stock
What to Take Away From This
FAQ
Sources

What Happened

On Friday, October 30, Reddit (NYSE: RDDT) closed down roughly 29% at $91.73, with the intraday decline touching nearly 30% at its worst point. Several outlets described it as on pace for the stock's worst single-day drop since its March 2024 IPO, and the closing price itself was the lowest the stock had traded at in over a year. What makes this crash unusual is what triggered it: not a miss, but a beat.

Reddit's third-quarter revenue came in at $895 million, up 53% year over year - above both the $860-870 million range the company itself had guided to on its prior earnings call and above Wall Street's consensus. Adjusted earnings per share landed at $1.40, a solid number by most measures. User metrics looked healthy on the surface too: weekly active uniques rose 16% year over year to 515.2 million, and daily active uniques (DAU) climbed 12% to 130.3 million. Taken in isolation, the growth figures told the story of a company firing on all cylinders.

What actually sank the stock was the forward guidance Reddit paired with those results. The company guided fourth-quarter revenue to a range of $1.00 billion to $1.03 billion, short of the roughly $1.04-1.05 billion analysts had modeled. The more damaging signal came on the user side: management warned that Q4 DAU could decline by a low-double-digit percentage year over year - a sharp reversal from the 12% growth just reported for Q3. The warning wasn't purely hypothetical. U.S. DAU had already turned negative in Q3, down roughly 2% from a year earlier. In other words, the global number was still rising, but the company's most important market had already started shrinking, and management was telling investors that trend was about to go global.

Why 53% Revenue Growth Didn't Protect the Stock

Management named the cause directly. CEO Steve Huffman told analysts on the earnings call that Google's AI Overviews and AI Mode - features that generate summarized answers directly on the search results page - are eating into the search-referral traffic Reddit has long relied on. Where a user searching a question used to click through to a Reddit thread for the answer, Google's AI can now surface a summary of that same Reddit content right on the results page, removing the need to click through at all. The effect concentrates on logged-out, casual visitors - precisely the segment that has historically underpinned a meaningful share of Reddit's advertising revenue.

What makes this episode more than a one-off is that it's the second consecutive quarter the exact same dynamic has played out. When Reddit reported second-quarter results in early August, revenue had grown 61% year over year - and the stock still fell more than 20% on the same concern. Huffman said at the time that "search referrals were choppy" throughout the quarter and that Google's AI Overviews had yet to become a genuine "win-win" for Reddit. Two quarters in a row of explosive revenue growth paired with a stock-price collapse is a pattern, not a coincidence - and it tells investors the market now cares less about how fast revenue grew last quarter than whether that growth can survive without search traffic Reddit doesn't fully control.

The tension has spilled into Reddit's commercial relationship with Google itself. The two companies signed a data-licensing agreement in 2024, worth roughly $60 million annually, that lets Google train its AI models on Reddit's content. Reports have since surfaced that Reddit is internally reconsidering whether that deal still benefits the company, given that the same AI trained partly on Reddit's data is now the thing cutting into Reddit's own traffic. It's a genuine dilemma: the licensing fee is real revenue, but the AI answers built in part from that content are arguably displacing a larger amount of advertising revenue on the other side of the ledger.

Wall Street's reaction was swift and broad. KeyBanc downgraded Reddit from Overweight to Sector Weight and pulled its price target entirely, citing concern that deteriorating search traffic could undermine revenue and adjusted EBITDA estimates well out into 2027 and 2028 - not just the next quarter. Several other firms cut price targets sharply within the same day or two: Bernstein to $120 from $180, Cantor Fitzgerald to $120 from $170, B. Riley to $190 from $270, Wells Fargo to $110 from $142, and Citi to $186 from $245. With those cuts, Reddit now sits roughly two-thirds below its all-time closing high of $270.71, set in September 2025.

What to Take Away From This

Revenue growth and business durability are two different questions. Reddit posted 50%-plus revenue growth in two straight quarters, and the stock cratered both times. The market is pricing in whether that growth can continue, not celebrating that it happened last quarter.
A problem that repeats for the same stated reason is a trend, not noise. The identical explanation - Google's AI eroding search referrals - showed up in both the August and October selloffs. When a company cites the same root cause twice in a row, it's worth treating as structural rather than one-time.
Regional and segment-level data often reveal a turn before the headline number does. Global DAU was still growing, but U.S. DAU had already gone negative. Investors who only check the consolidated figure can miss an inflection that's visible in the breakdown months earlier.
Analyst price target cuts typically arrive after the move, not before it. Every target cut mentioned above was published after the 29% drop had already happened. Treating downgrades as a trading signal means accepting that the signal is usually late.
AI can disrupt a company's distribution channel without touching its core product at all. Reddit's content didn't get worse - the pathway users take to reach it changed. Any business that depends heavily on search-referral traffic for ad revenue faces a version of this same structural question.

FAQ

Is Reddit's underlying business actually breaking down?

Not based on the numbers reported so far. Revenue grew 53% year over year and beat the company's own prior guidance. The stock move is about forward risk, not current performance: management's warning that U.S.-style DAU declines could spread globally in Q4 is what investors are pricing in, not anything wrong with the quarter just reported.

What exactly are Google's AI Overviews and AI Mode?

They're features that display an AI-generated summary answer directly on Google's search results page. Previously, a user searching a question often had to click through to a site like Reddit to find the answer. Now the answer can appear inside Google's own results page, which reduces the click-through (referral) traffic sites like Reddit receive.

What happens if Reddit cuts off its data deal with Google?

Reddit would give up roughly $60 million a year in licensing revenue, a real near-term cost. But staying in the deal means continuing to supply content that trains the very AI system some executives believe is displacing a larger amount of advertising revenue. No termination has been confirmed - reports describe it as an internal review, not a finalized decision.

Is this traffic risk unique to Reddit, or does it apply more broadly?

Reddit is the most visible case so far, but the same structural pressure applies to any media, news, or community-driven internet company that depends on search-engine referral traffic for advertising revenue. The actual impact likely varies by company depending on how much of their traffic is logged-in and direct versus logged-out and search-driven.

Sources

This article is an original synthesis and analysis based on the reporting below, not a reproduction of the original articles. Please check the source articles directly for the most current figures.

⚠️ This article is for informational purposes only and is not investment advice. Market conditions change constantly - always verify the latest data before making investment decisions.