Reddit: AI data deals, ad gains, and the 'Search referrals were choppy' shock

Reddit reported striking Q results — revenue up 61%, profit more than doubled, and EPS beat expectations — yet its stock fell over 20% in one day. The speaker attributes the rally-and-crash to two opposing dynamics: improving monetization and a self-inflicted hit to Reddit's discovery funnel. On the monetization side Reddit raised ad yields (the company made "$6.18 for every daily user" last quarter vs Meta's "$17"), saw a ~70% year-over-year increase in advertisers, and cleaned up content (banning "around 2,000 controversial subreddits in a single day"). It also bought moderation/ML tools — "MeaningCloud", "spike trap", and the "Oderlu team" — "within a seventh month period in 2022" to make the site more brand-safe.

Concurrently Reddit licensed its community content as AI training data: Google signed for a reported "$60 million a year" early in 2024 and OpenAI for "around $70 million a year". The speaker argues those deals undermined Reddit's primary user-acquisition channel: search referrals. Because large language models and search-integrated AI now answer queries with content resembling top Reddit threads, many users never click through. The transcript cites that "68% of all Google searches were ending without a single click through to the open web," and quotes Reddit CEO Steve Huffman acknowledging 'our visibility on search continues to remain low and we expect it to probably continue to be volatile.'

Additional harms cited: increased AI-generated and bot content poisoning timelines (University of Zurich experiment on r/changemyview), circular financing and potential conflicts (OpenAI partnership, Sam Altman once held an "8.7% stake" in Reddit and later sold most holdings), and a class-action alleging executives knew the risks. The conclusion: Reddit succeeded in squeezing more ad and AI revenue short-term, but the transcript argues those same moves have likely cannibalized Reddit's organic discovery funnel and investor confidence, producing the rapid stock decline.