Reddit down 27% YTD on Google data deal uncertainty ahead of earnings

Reddit's second-quarter earnings report on July 30 comes amid a sharp stock decline that began with reporting about internal discussions to restrict Google's platform access during their data licensing deal renewal. The stock is down about 27% year to date, with the single largest driver being a 9% drop following Wall Street Journal coverage that the company had considered blocking Google's access to its content for AI training as renewal talks encountered friction.

On the surface, the Google licensing threat appears modest: the $60 million（約96億円）-a-year agreement that began in 2024 represents less than 2% of Reddit's trailing revenue. However, investors reacted to what the move signals about the business itself. If Reddit is willing to walk away from an established AI licensing partner, it raises fundamental questions about the durability of the rest of Reddit's data licensing business and whether Google's AI-powered search results are already cutting into the referral traffic Reddit depends on.

Reddit's underlying operational performance has remained strong. The company has not missed an analyst estimate since going public in 2024. Revenue growth actually accelerated: 61% year-over-year in the first quarter of 2025, then 69% in the most recent quarter. Diluted EPS rose 7x during this period, and free cash flow rose 145% year-over-year in the first quarter. Gross margin sits at 91%, up 100 basis points year-over-year, and net income margin runs at 29%, both far above typical social media peers. Weekly active users grew 23% year-over-year to about 493 million, with particularly strong international expansion: daily active users outside the US grew 26% to 73.3 million, now representing 58% of Reddit's roughly 127 million total daily active users. Advertising revenue rose 74% year-over-year to $625 million（約1000億円）.

On valuation, Reddit trades at 24x forward earnings, an 84% premium to the 13x sector median. That premium compresses when growth is factored in: revenue is up 71% over the past 12 months against a 3% peer average, and diluted EPS is up more than 430% against a 7% peer average. On a PEG basis (price-to-earnings-to-growth), Reddit trades at 0.55 versus a 1.26 peer average, a 57% discount. Wall Street's average price target sits around $221–$227, implying 30%+ upside from current levels.

CEO Steve Huffman has publicly argued that Google needs Reddit's data more than Reddit needs any single AI partner, and that a renegotiated, usage-based deal could actually raise Reddit's revenue instead of cutting it. Until a deal is announced, however, this remains an untested assertion and the central unknown heading into earnings.

Reddit's earnings report on July 30 arrives at a critical juncture for investor confidence. The company's fundamentals remain strong by any traditional metric: revenue growth accelerated to 69% in the most recent quarter (up from 61% in Q1 2025), diluted EPS rose 7x during this period, free cash flow jumped 145% year-over-year in Q1, and gross margin expanded to 91% while net income margin sits at 29%—far above typical social media peers. Weekly active users grew 23% year-over-year to about 493 million, with international growth outpacing the US.

Yet the 27% year-to-date decline reflects a single concern: the fragility of Reddit's emerging data licensing business and its exposure to Google's AI search strategy. The Wall Street Journal report that Reddit discussed restricting Google's platform access during contract renewal talks sparked a 9% single-day drop, suggesting investors view the $60 million（約96億円） Google deal not as a mere 2% revenue supplement, but as a bellwether of whether Reddit can sustain licensing partnerships with major AI companies. CEO Steve Huffman's public position—that Google needs Reddit's data more than Reddit needs any single AI partner, and that a renegotiated usage-based deal could increase revenue—remains an untested assertion. The real strategic risk is not the licensing deal itself, but whether Google's AI-powered search summaries are already beginning to erode the referral traffic that drives Reddit's primary revenue engine: advertising, which rose 74% year-over-year to $625 million（約1000億円）. Until a new Google agreement is announced, this remains the defining uncertainty overshadowing the company's otherwise robust operational performance.

No comments yet. Be the first to share your thoughts!