Reddit NYSE:RDDT shares fell about 20% on Friday after the social media platform delivered stronger-than-expected second-quarter results, as investors focused on uncertainty around search traffic and artificial intelligence.
Reddit revenue climbed 61% year over year to $805 million, topping Wall Street expectations of about $730 million. Net income reached $253 million, or $1.25 per diluted share, compared with $89 million, or 45 cents, a year earlier.
Reddit's advertising business remained the main contributor to growth. Advertising revenue increased 64% to $762 million, while daily active users rose 18% to 130.3 million. International users grew faster than those in the United States.
For the third quarter, Reddit expects revenue of $860 million to $870 million, above analysts' forecast of about $828 million. Adjusted EBITDA is projected at $385 million to $395 million.
Despite the outlook, Reddit faces questions about the effect of changing search algorithms and AI-powered search services on traffic referrals. U.S. daily active user growth slowed to 6% in the quarter, adding to investor concerns about future audience expansion.