Reddit Inc. (NYSE:RDDT) is encouraging more direct engagement through its app instead of finding the platform through Alphabet Inc.’s (NASDAQ:GOOG) (NASDAQ:GOOGL) Google Search after CEO Steve Huffman said search referrals turned “choppy” during the second quarter, sending shares tumbling in extended trading.
Google’s AI Search Has Yet to Deliver a ‘Win-Win
“Search referrals were choppy in the quarter and traffic was more volatile later in the quarter. The bigger picture is unchanged,” Huffman told analysts during Reddit’s second-quarter earnings call Thursday.
He said the company has limited visibility into referral traffic as the search ecosystem continues to evolve.
Huffman contrasted Google’s traditional “10 blue links,” which he said created significant value for users and publishers, with AI Overviews, which “has yet to make a similar level of positive impact.”
The industry is still looking for a “win-win” model that works for search platforms, publishers and users alike.
LightShed Partners analyst Rich Greenfield said in a post on X that he had “rarely” seen “a disconnect this wide between a company’s revenues, earnings and free cash flow growth and short-term stock price performance.”
Direct Users Matter More Than Search Traffic
Reddit is focused on building a larger base of direct users rather than depending on search referrals.
“We’re not building for drive-by traffic. We’re building a daily destination,” the CEO said, describing the company’s push to make Reddit an app users intentionally return to rather than discover through search.
He said direct app users are “worth multiples more than the search referral traffic,” adding that Reddit’s priorities include improving onboarding, increasing retention and converting more logged-out web visitors into logged-in app users.
Double Beat Fails to Impress Investors
Reddit reported second-quarter earnings of $1.25 per share, beating analysts’ estimates of 95 cents, while revenue rose to $804.9 million, topping the consensus estimate of $730.3 million.
Daily Active Uniques increased 18% year over year to 130.3 million, while Weekly Active Uniques climbed 24% to 514.6 million.
The company also forecast third-quarter revenue of $860 million to $875 million and adjusted EBITDA of $385 million to $395 million.
Price Action: The stock closed 0.028% higher at $178.04 on Thursday, but slumped 10.53% to $159.29 in extended trading on the earnings announcement.
Benzinga edge rankings indicate RDDT has a Momentum score in the 55th percentile and a Growth score in the 98th percentile.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo courtesy: Ink Drop / Shutterstock
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