Reddit's third quarter was, on paper, a good one: revenue of $895 million, up 53% year over year and above estimates, earnings per share of $1.40 against $1.35 expected, and average revenue per user of $6.87. The problem was everything pointing forward. Daily active uniques rose 12% to 130.3 million but missed the 133.7 million analysts expected. In the United States they fell 2% to 50.7 million, well short of the 53.5 million projected. Fourth-quarter revenue guidance of $1.0–1.03 billion came in under the $1.05 billion consensus, and the stock fell more than 15% after the report, with later coverage describing a drop of around 30%.
The cause is not a mystery, and Reddit's CEO says it out loud. "The AI Mode does not drive traffic, not for us and not to anybody as far as I know," Steve Huffman told analysts. Search engine referrals fell by more than a million on average each week during October. "I think fundamentally that relationship between Google and the rest of the internet is evolving," he told CNBC, describing the shift from AI Overviews and AI Mode not as another algorithm update that would "come and go" but as "a fundamental shift in how the Google product works, from being a traffic driver to whatever's going on now."
That is a remarkable thing for a company to say about the partner that built it. Google's 2023–24 push to surface "authentic" forum content sent a wave of search traffic to Reddit, which helped power its user growth and its 2024 IPO. Reddit's answer to that dependency was to license its archive — OpenAI and Google are its two biggest data-licensing partners, and "other revenue" rose 35% to $48 million last quarter. So the same corpus is worth real money as training data while the humans who produce it arrive in shrinking numbers.
The response is the interesting part. Reddit will begin testing a primarily logged-in experience in the fourth quarter, starting in markets outside the United States, and eventually intends to require accounts. Huffman was candid about what that means: "Reddit is the last platform to provide basically unfettered logged-out access, and that's largely because of me, I've been holding that line." He called it "a sign of the times. It's an evolution of how these platforms work."
Strategically, this is a bet on a different business. Logged-in users are more valuable to advertisers — more active, more targetable — and the company says the vast majority of its revenue already comes from app users and direct, logged-in traffic. Driving search arrivals into a login wall converts anonymous visitors into either accounts or nothing. It also reduces what can be scraped, which matters when AI crawlers are the reason your referral traffic is collapsing: this week's announcement that OpenAI, Google, Microsoft and Anthropic will honour a single robots.txt opt-out token gives publishers a switch, and Reddit's switch is a wall.
The cost is the thing Reddit has been selling for twenty years: being the place the internet answers its own questions. Ask any search query that ends in "reddit" and you are asking for a human thread about a niche product, a medical symptom, a landlord dispute. The people who write those threads are mostly logged in. The people who find them are not — they arrive from a search result, read one page, leave. A login wall severs that route, and with it the mechanism that made Reddit culturally central: not its own homepage, but everyone else's search results.
There is a coherent version of the plan. If AI assistants become the top of the funnel, being a source that assistants can read and cite is worth more than being a page humans click. Reddit could push users to its app, deepen the data-licensing business, and let search traffic decay on purpose. Huffman is also negotiating the Google licensing deal, saying Reddit will "only do a deal that makes sense for Reddit" — the leverage of a supplier that can turn off the tap.
The risk is that both halves fail at once. Reddit's archive is valuable to AI labs precisely because it is a living, continuously updated record of human conversation; starve the inflow of new searchers and you slowly starve the corpus, while the licensing revenue ($48 million a quarter) is an order of magnitude smaller than the advertising business it is meant to protect. Meanwhile the wall hands an opening to every competitor willing to stay open.
What to watch: which markets the tests launch in, how much of the site logged-out visitors can still read, whether Google's referrals stabilise at the lower level or keep falling, and whether the data-licensing renewal with Google happens at a higher or lower price. Those four numbers will settle whether Reddit was diversifying away from search — or amputating the limb it was standing on.
Why it matters: this is the first large platform to answer the collapse of search referral traffic by closing itself rather than opening up, and its decision sets the terms for every content site deciding whether to remain readable by the machines that replaced its visitors.
