Reddit stock dropped 23% in premarket trading on Friday after the company issued a warning regarding the impact of artificial intelligence on its user base. The social media platform stated that Google's increasing use of AI in search is diminishing referral traffic, which could lead to a contraction in its total daily active unique visitors. Reddit projected that if this trend continues, visitor numbers could decline by a low double-digit percentage in the fourth quarter from approximately 130 million.
Analysts noted that Google's expansion of AI Overviews and AI Mode, alongside adjustments to how machine-translated content is ranked, has significantly pushed search traffic down. JPMorgan analysts highlighted these shifts as key drivers of the disruption, while Piper Sandler suggested that a reset in market expectations is now appropriate given the increasingly clouded near-term outlook. Despite these challenges, Reddit confirmed in a filing that it has extended its cloud services agreements with Amazon Web Services and Google through 2029, committing to spend $880 million and $580 million respectively over the next three years.
Pinterest shares also declined, falling 7.28% after the company forecast fourth-quarter revenue below Wall Street estimates. The platform reported third-quarter revenue of $1.17 billion, missing analyst expectations of $1.21 billion. For the upcoming quarter, Pinterest projected revenue between $1.425 billion and $1.475 billion, which remains under market forecasts. RBC analysts attributed this shortfall to changes in the European Union's de minimis exemption, which has negatively impacted cross-border sellers sooner and more severely than anticipated, leaving Pinterest's European revenue flat.
The broader market performance for both companies has been weak throughout the year. Through Thursday's close, Reddit shares had fallen approximately 44%, while Pinterest was down about 23%. If current losses persist, Reddit is projected to lose $5.7 billion in market value, with Pinterest facing a decline of more than $800 million.
Sources: Investing.com News.