Reddit shares tumbled 29 percent 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. The decline wiped billions from Reddit’s market value and underscored a structural shift that has been building for some time: the platforms that once depended on search engines for discovery are now competing with those same engines for the attention of people who simply want an answer.
Vitor Madeira, senior market specialist at Capital.com, said, “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.” That framing captures the core anxiety driving the selloff. Reddit’s business depends on people arriving, reading threads, signing in and eventually seeing ads or paying for premium features, and a meaningful share of those arrivals have historically come through Google. When the search engine answers a query directly, the user never reaches the discussion, and the value of the content that informed the answer flows to Google rather than to the community that produced it.
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. That guidance is unusually blunt for a company reporting quarterly results, and it helps explain the severity of the market reaction. A low double-digit decline in daily users would be a serious blow for a platform still working to prove that its advertising business can scale, and the warning implies that management sees no quick fix on the horizon. The trend is also hitting other businesses, including news publishers, educational platforms such as Chegg and travel and product-review sites. The common thread is that all of them produce information that Google’s AI summaries can now absorb and present without sending the user onward, a dynamic that has quietly reshaped the economics of the open web.
Meanwhile, shares of rival Pinterest fell nearly 8 percent after it missed analysts’ estimates for third-quarter revenue and profit, and forecast revenue for the crucial holiday quarter below estimates. 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 percent and 23 percent, respectively, this year through their last close. Pinterest’s troubles are not identical to Reddit’s, since the company’s visual discovery model depends less on search referrals and more on direct browsing and shopping intent, but the shared selloff suggests investors are treating any platform with uncertain user growth as a risk in the current environment.
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. That premium reflects the market’s earlier confidence in Reddit’s growth story, and it also explains why the stock had so much room to fall. A company trading at a multiple well above its peers needs to keep delivering user growth to justify the valuation, and a warning about declining visitors removes the foundation beneath that multiple in a single afternoon. Separately, Reddit on Friday said it has extended its cloud services agreement with Google through 2029, committing to spend $580 million over three years. The arrangement is a reminder that the relationship between the two companies is not purely adversarial; Reddit pays Google for infrastructure even as it complains that Google’s search products are siphoning its audience, a dependency that cuts in both directions.
