Reddit shares plunge as Google’s AI search squeezes traffic

Oct 30 (Reuters) – Reddit (RDDT.N), opens new tab shares tumbled 29% 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.

“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,” said Vitor Madeira, senior market specialist at Capital.com.

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.

The trend is also hitting other businesses, including news publishers, educational platforms such as Chegg (CHGG.N), opens new tab and travel and product-review sites.

Meanwhile, shares of rival Pinterest (PINS.N), opens new tab fell nearly 8% 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% and 23%, respectively, this year through their last close.

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.

Separately, Reddit on Friday said it has extended its cloud services agreement with Google through 2029, committing to spend $580 million over ⁠three years.

Google is also facing questions about monetization of AI-powered search, after growth in search revenue slowed to 12% in the September quarter, sending Alphabet shares tumbling and wiping ⁠about $500 billion off its market value on Thursday.