Reddit's second-quarter earnings report, released Thursday, beat analyst estimates on revenue and profit, and its forward guidance also came in well above forecasts.
Reddit's global daily active unique users (DAUq) rose 18% from a year ago to 130.3 million, topping the 129.9 million analysts had expected. In the U.S., DAUq increased 6% to 53.2 million. The overall average revenue per user (ARPU) came in at $6.18; U.S. ARPU hit $11.85.
Free cash flow more than doubled, reaching $261 million compared with $111 million a year ago. The company's "Other revenue" segment, which encompasses its data licensing agreements with OpenAI and Google, grew 24% year-over-year to $43 million.
Huffman, in his investor letter on Thursday, wrote: "Search referrals were choppy in the quarter, and traffic was more volatile later in the quarter." He added, "But the bigger picture is unchanged. The commercial business is strong, our revenue growth is differentiated, and we have much to be encouraged by on the product side."
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Earlier this month, Reddit's stock dropped when the Wall Street Journal disclosed that the company had been weighing a move to block Google from accessing its data. Both Reddit and media outlets such as USA Today and Politico worry that Google's growing emphasis on its Gemini AI chatbot is reducing the referral traffic they get from the search engine.
A company representative told CNBC that Reddit is handling the talks "just like any business should, by focusing on doing what's best for Reddit." Huffman stated that Reddit is evaluating its alternatives. "In AI overviews, we have still yet to find that win-win, but we're still you know collaborative and looking for that," he said. "I don't think there's any simple binary decision here."
Reddit's relationship with Google is multifaceted. Google pays Reddit for data licensing through the "Other revenue" segment, which rose 24% year-over-year to $43 million. At the same time, Google's search algorithm and AI overviews remain a vital source of referral traffic for the social platform.
Any disruption to that traffic could weigh on user growth and advertising revenue. Investors are watching these dynamics closely as Reddit navigates its first year as a public company, having gone public in March 2024.
Reddit projected adjusted earnings between $385 million and $395 million for the third quarter, surpassing the $368 million that analysts had predicted.
For now, the company is keeping its cards close. The real answer will come in the next quarter's numbers, when investors will watch traffic sources as closely as the revenue line.
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