Reddit Shares Plunge 30% Following CEO Warning Over Google AI Search Impact

Reddit shares suffered a brutal selloff on Friday, plunging 30.44% to close at $90.15 after CEO Steve Huffman issued a stark warning that Google’s expanding AI-powered search features are actively cannibalizing referral traffic and threatening the platform’s future user growth.

The dramatic drop came on the heels of the company releasing its financial report for the third quarter of 2026. While the headline figures initially pointed to continued business momentum, a weaker-than-expected revenue forecast for the current quarter and a sobering outlook regarding organic search traffic sent Wall Street into a panic. The stock’s steep decline wiped out billions in market value and dragged shares down roughly 44% over a single week, leaving the platform facing a pivotal test of its long-term business model.

For years, Reddit built the foundation of its massive online ecosystem around search engines. Millions of people around the world discovered authentic, human-generated discussions on everything from niche hobbies to complex technical troubleshooting through Google searches. Historically, those searchers would click through to Reddit, browse the community threads, and either sign up or log in to participate.

However, the rapid rollout of Google’s AI Overviews and AI Mode has fundamentally altered how internet users consume information. Instead of sending traffic outward to websites, Google’s AI features now generate synthesized answers and summaries directly inside the search results page. Users get the information they are looking for without ever needing to visit the underlying platform.

This shift places immense pressure on Reddit’s burgeoning advertising business, which has rapidly transformed the platform into one of the internet’s fastest-growing publicly traded companies. If potential visitors no longer click through to read threads, the overall inventory of ad-viewable pages shrinks, threatening the core revenue engine that Wall Street has come to expect.

At first glance, Reddit’s third-quarter financial results for 2026 appeared remarkably healthy. Total revenue climbed 53% year over year to reach $895 million, driven largely by a 54% surge in advertising revenue, which hit $847 million. Net income for the quarter stood at a robust $283 million.

Furthermore, Reddit reported diluted earnings per share of $1.40—representing a 75% increase from the same period a year earlier and comfortably beating the $1.33 consensus estimate compiled by market analysts.

Despite the strong financial beat, audience metrics told a more worrisome story. Reddit reported 130.3 million daily active unique visitors during the quarter. While this represented a 12% increase compared to the previous year, it fell short of the roughly 134 million daily active users that analysts had anticipated. More alarmingly, the user count inside the United States actually contracted by 2% year over year down to 50.7 million, handing investors a concrete reason to question whether the platform is hitting a domestic growth ceiling.

The underlying catalyst for Friday’s panic was laid bare during Thursday’s earnings call, when Huffman addressed the shifting traffic patterns head-on. The CEO revealed that Google search referrals had dropped by more than one million on average every single week during October, with the downward velocity accelerating toward the end of the third quarter.

Huffman warned that if this current trajectory holds, Reddit’s total daily active user count could decline by a low double-digit percentage in the fourth quarter compared to its baseline of approximately 130 million. When pressed on whether Google’s AI tools were directly responsible for the bleeding, Huffman confirmed that the generative features had expanded aggressively across both domestic and international markets.

"The AI mode does not drive traffic, not for us and not to anybody as far as I know," Huffman told investors during the call.

This phenomenon underscores an acute crisis facing not just Reddit, but virtually every digital publisher, forum, and media outlet across the modern internet. While people continue to type queries that lead to Reddit discussions, Google’s search infrastructure increasingly acts as a terminal destination, letting users consume the text of those conversations directly on the search engine results page.

Because search referrals serve a dual purpose—bringing in brand-new audiences while re-engaging existing users—the loss of these clicks creates a compounding problem. Lower visibility impacts both new-user acquisition and overall platform retention.

To mitigate this existential reliance on external search traffic, Reddit is actively pivoting its strategy. The company is moving toward a primarily logged-in experience, which would require individuals to sign into an established account before they can access the vast majority of the platform’s content. Reddit plans to initiate testing for this structural change in select international markets outside the United States during the fourth quarter.

This defensive pivot also intersects with Reddit’s controversial, highly lucrative monetization deals with the artificial intelligence sector. In February 2024, Reddit struck a landmark data licensing agreement with Google reportedly valued at $60 million annually, granting the search giant continuous access to historical and real-time Reddit conversations to train its AI models. Just months later, the company inked a similar partnership with OpenAI, allowing the maker of ChatGPT to incorporate Reddit data into its systems while giving Reddit access to developer tools.

These agreements transformed Reddit’s monumental archive of authentic human dialogue into a major revenue stream. Yet, they created a paradoxical dilemma: the exact AI developers paying millions to ingest Reddit’s data are simultaneously deploying search features that siphon away the live user traffic those discussions once generated.

Compounding these tensions, Reddit has aggressively tightened access to its public data, curbing RSS feeds and public API access to shut out unauthorized AI scrapers. While necessary for protecting corporate intellectual property, these restrictive moves have frequently alienated long-term power users and community moderators.

The resulting market reaction has been swift and unforgiving. Friday’s 30.44% collapse to $90.15 pushed the stock deeper into a steep weekly correction, leaving shares trading at a fraction of their prior valuations.

From a technical perspective, the market indicators offer little near-term comfort. Reddit’s 50-day exponential moving average—a trend metric that assigns greater statistical weight to recent price action—sits near $149.80, while its 200-day moving average hovers around $162.12. The faster 50-day average has recently crossed below the slower 200-day average, forming a classic "death cross," a technical chart pattern widely viewed by traders as an indicator of a prolonged downward trend.

At the current price of $90.15, Reddit shares would need to rally by roughly 66% to 70% merely to retest the 50-day moving average. Such a recovery would only bridge the gap to the short-term trend line without reversing the broader death cross pattern itself. With both major moving averages positioned far above the stock’s current trading range, a rapid rebound appears increasingly difficult, leaving management with the task of proving that the platform can navigate the disruptive landscape of generative AI search.