The selloff in Reddit shares came as investors looked past the earnings beat and focused on slowing U.S. user growth and management's commentary on its relationship with Google.

  • Analysts at Wells Fargo said that Reddit’s relationship with Google has become a bigger overhang after Q2.
  • The firm said Reddit's sequential decline in U.S. daily active users and management's muted commentary on search engine optimization trends overshadowed an otherwise strong earnings report.
  • JPMorgan echoed that view, saying traffic headwinds tied to Google's rollout of AI Overviews continued to pressure daily active user trends.

Shares of Reddit Inc. (RDDT) fell sharply in Friday’s pre-market trade despite the social media company reporting better-than-expected second-quarter results and issuing stronger-than-expected guidance for the third quarter.

The selloff came as investors looked past the earnings beat and focused on slowing U.S. user growth and management's commentary on its relationship with Alphabet Inc.'s (GOOG, GOOGL) Google.

Reddit shares were down nearly 14% in the pre-market session. RDDT was among the top trending tickers on Stocktwits at the time of writing.

GOOGL Friction Clouds AI Licensing Outlook For RDDT, Says Wells Fargo

According to TheFly, Wells Fargo said that Reddit’s relationship with Google has become a bigger overhang after the second quarter (Q2).

The firm said Reddit's sequential decline in U.S. daily active users and management's muted commentary on search engine optimization trends overshadowed an otherwise strong earnings report.

Wells Fargo also warned that ongoing friction with Google could make the setup for future AI licensing deal renewals more challenging and potentially preclude a near-term reacceleration in user growth.

The firm said those concerns outweighed the company's better-than-expected results and guidance, prompting a more cautious stance on the stock.

Wells Fargo lowered its price target on Reddit shares to $142 from $187 while maintaining an ‘Equal Weight’ rating

Wall Street Sees Search Traffic Headwinds Persisting For RDDT

Beyond Wells Fargo's concerns, several analysts pointed to Google's evolving search ecosystem as the primary reason behind Reddit's softer U.S. user trends, even as they remained broadly positive on the company's long-term outlook.

Piper Sandler lowered its price target to $195 from $215 while keeping an ‘Overweight’ rating on the stock, but trimmed its estimates to reflect softer user growth.

The firm said that while Reddit comfortably beat expectations, the sequential decline in U.S. daily active users and management's less-than-reassuring commentary on its Google relationship weighed on investor sentiment.

JPMorgan echoed that view, saying traffic headwinds tied to Google's rollout of AI Overviews continued to pressure daily active user trends. The firm said search traffic volatility is likely to remain a key issue during Reddit's ongoing data licensing renewal negotiations with Google.

JPMorgan lowered its price target on Reddit shares to $185 from $200, while keeping a ‘Neutral’ rating.

RDDT CEO Says Search Referrals Were ‘Choppy’ In Q2

Reddit CEO Steve Huffman acknowledged during a post-earnings call that search referrals were "choppy" during Q2 and traffic became more volatile later in the period, but said the company's long-term outlook remains unchanged.

“As AI makes information more abundant, the challenge is no longer finding content; it's finding context, personal opinion, and first-hand accounts. Everything online feels flat, polished, generated, or sponsored, so consumers are overwhelmed and increasingly skeptical,” he said.

Reddit reported earnings per share of $1.25 on revenue of $805 million in Q2, while Wall Street expected an EPS of $0.97 on revenue of $731 million, according to Fiscal.ai data.

The company forecast revenue of $860 million to $870 million in the third quarter (Q3), beating the consensus estimate of $830 million.

What Stocktwits Users Think Of RDDT Stock

Retail sentiment around Reddit trended in the ‘extremely bullish’ territory at the time of writing, with message volumes at ‘extremely high’ levels.

RDDT stock is down 23% year-to-date, but up 19% over the past 12 months. The Vanguard Morningstar Total Stock Market ETF (VTI) is up 17% over the past 12 months, while the Vanguard Morningstar Mid-Cap ETF (VO) is up 13%.

The Vanguard Morningstar Growth ETF (VUG) is up 11% during this period, while the Vanguard Extended Market Index Fund ETF (VXF) is up 19%.

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