Reddit Has a Landlord, and His Name Is Google
Reddit crushed Q2 earnings and the stock fell 21%. Here's what the market saw that the bulls didn't.
Accrued Interest TLDR: Reddit just printed one of the best quarters you will see from a public company, yet the stock lost a fifth of its value in two sessions. I think the market got it right. This article walks through the uncomfortable truths behind the numbers: that people do not actually crave human answers the way Reddit’s marketing insists they do, that Reddit’s spectacular growth rates are partly the arithmetic of a company that waited twenty years to start monetizing, that Reddit is a specialist platform being valued like a mass one, and that Google sits at the top of Reddit’s funnel with all of the leverage and none of the obligation. I am not calling a top. I can see this stock going higher. What I cannot understand is why anyone would pay a premium over Meta to own it. Subscribe for the Accrued Interest initiating coverage on Reddit.
Introduction
I am not here to tear down Reddit. What I want to do today is walk you through a handful of uncomfortable truths about Reddit’s business model. Uncomfortable because they are the kind of thing people who own the stock have decided not to look at too closely.
Last week on July 30th, Reddit reported Q2 earnings that on paper would normally make any shareholder happy. Revenue of $805 million was up 61% YoY, the eighth straight quarter of 60%+ growth. GAAP EPS of $1.25 per share beat estimates of $0.95. Guidance for Q3 was above the Street.
Yet Reddit’s stock fell about 11% after hours and closed the next session down 21%. It has since worked its way back to around $160 per share.
Almost every bull response I have gotten in the week since amounts to “just look at the financials.”
But the market is clearly looking through the financials and identifying cracks in the underlying business model.
Reddit is adding users where the money is not, and earning money where the user base has stopped growing. In this report I will explain all of this in detail.
Let me first paint a picture in terms of how I think about the company.
I think of Reddit as the friend who was effortlessly cool through his twenties, but never held down a steady job, and then at age thirty decided to get serious and lock in. On paper, his income growth over the next three years is going to look spectacular. Some of that is real talent finally applied. But a lot of it is just arriving where he should have been a decade ago.
Reddit has been around since 2005. For most of that time it had a cultural footprint enormously larger than its financial one.
This is exactly how a company can grow revenue 61% and earnings 90% and still disappoint. Reddit ran a barely-monetized platform for two decades and is now collecting revenue it left on the table for years.
This is why I do not extrapolate Reddit’s current growth in perpetuity. Now allow me to walk you through my six uncomfortable truths about Reddit.
Uncomfortable Truth #1: People Are Not Always the Best
At the end of June, Reddit launched its first-ever U.S. brand campaign, called “People Are the Best.” The pitch is that in a world drowning in AI slop, Reddit is where actual humans talk to each other.
However, actions speak louder than words. What people do, billions of times a day, is choose the answer that is accurate, fast and free. Nobody opens a search box yearning for a rich human experience.
People are not infallible. They make mistakes, lie and distort facts. There is a long list of reasons why a person might prefer talking to a computer.
I think “authenticity” is something people say they want but consistently deprioritize when they are actually trying to get something done.
And based on Google’s Q2 earnings that came out two weeks ago, I see absolutely nothing on the horizon to slow down the adoption of AI Overviews. Google Search revenue grew 17% to $63.3 billion, a full year into the AI Overviews era. AI Mode crossed 1 billion monthly users, and Sundar Pichai told investors that Google’s AI features are driving search query growth. The AI answers are not cannibalizing Google’s search business. They are feeding it.
With GOOGL stock back up to $380 per share, I am starting to think that Warren Buffett might know what he is doing.
Uncomfortable Truth #2: The Real User Problem Started Two Years Ago
Arguably the scariest headline from Reddit’s Q2 earnings was that U.S. daily actives fell sequentially for the first time on record, from 53.5 million to 53.2 million. About 300,000 users.
Bulls have waved this away as just noisy data. 300,000 out of 53 million is a rounding error.
I think this is the visible tip of something that started almost two years ago.
For years, Reddit has disclosed logged-in daily actives separately. Management said that direct and app users are worth multiples more than someone who came to Reddit from a search result.
It was only two years ago that U.S. logged-in daily actives grew 27% YoY in Q1 2024. By Q4 of 2025 that growth rate was only 5%. The current pace is 1% YoY, with U.S. logged-in dailies stuck around 23 million for five straight quarters.
The way I read this, that 300,000 user decline we just saw in Q2 was evidence that the problem got too big to hide behind the total.
Users are visiting Reddit less often, not more
On earnings calls, Co-Founder and CEO Steve Huffman likes to point out Reddit has around 500 million weekly uniques and his focus is converting those weeklies into dailies.
Weekly actives crossed 500 million for the first time this quarter. But I decided to do the math and divide daily actives by the weekly total, and found six consecutive quarters of declining conversion. In layman’s terms, that means the share of users making Reddit a daily habit has been decreasing, not growing.
Rich Greenfield said the quiet part out loud
On the Q2 call, Rich Greenfield of LightShed told Huffman directly that the market believes Reddit has a user problem in the United States.
His reasoning ran like this: AI search results shrink logged-out referral traffic. A smaller funnel means fewer logged-out visitors converting into accounts, and so the user base suffers.
Let me offer a corrected version of that chain of events, which I believe is even worse for Reddit bulls.
Logged-in U.S. users are the cohort that does not depend on Google referrals. And that cohort went nowhere for five straight quarters before anyone described search referrals as choppy.
In hindsight, I believe that booming logged-out and international growth had been covering for a domestic core that stopped growing in 2024.
Reddit is turning off this disclosure at the worst possible time
The company is pulling back on much-needed reporting at just the moment when the numbers do not look good. Beginning with the upcoming Q3 2026 report, Reddit will stop disclosing logged-in and logged-out daily actives separately.
That split is the cleanest tool an outside investor has for separating engaged Redditors from drop-in search traffic.
Uncomfortable Truth #3: Reddit Is a Specialist Platform Priced Like a Mass One
To scale in digital advertising you have to reach the masses. In the United States, I would argue you need daily users north of 100 million before you can credibly say you have full penetration. Reddit has 53 million, and Huffman has named 100 million U.S. dailies as a goal without attaching a timeline to it.
Management’s framing on this is backwards. On the Q2 call, Huffman described the other social platforms as built for roughly the top 1% of creators, with Reddit being the place “for everybody else.”
He is only half correct.
A far higher share of Reddit’s audience actually posts on the service than on Instagram or TikTok, where the overwhelming majority of people are lurkers and never post anything about their lives.
But here is where I think he gets the analogy backwards. Anyone can open Instagram and start scrolling in about four seconds. That is what a mass product looks like. Reddit asks considerably more of you. You need to learn what a subreddit is, and absorb local norms that vary from community to community and are enforced by volunteers.
Huffman explained on the earnings call that many Reddit communities impose account age minimums, which makes it hard to grow new users. Reddit is building AI-powered spam protection specifically so it can start relaxing those gates.
(Sidenote: this has happened to me. It feels awful to have my human-authored comments auto-deleted by the spam filter!)
I think Reddit is a magnificent place for specialists. But this is not a platform on a glide path to 100 million American dailies.
Uncomfortable Truth #4: The Users and the Dollars Are in Different Places
Reddit is accumulating users in one hemisphere and dollars in the other.
The United States is 41% of Reddit’s daily active users and 79% of its revenue. International is 59% of the users and 21% of the revenue.
Now look at where the growth is going. In Q2, international accounted for 109% of net new global daily actives. (Above 100% because the U.S. went negative.) International has carried more than half of Reddit’s net daily user growth every quarter since Q4 2024.
And here is why that is a problem: international monetization is not catching up to the U.S. See the table below. The dollar gap between a U.S. and an international user has gone from $3.67 to $9.59 in two years.
That matters because of where the users are going.
Every international user Reddit adds today contributes about $2.26 a quarter against $11.85 for an American one, and the dollar difference between those two people has nearly tripled since early 2024. The more the mix tilts international, the harder blended ARPU has to fight just to stay flat.
The international surge and the U.S. stall are the same event
Reddit turned on machine translation at scale in Q4 2024, pushing translated content into Google search results in more than twenty languages. It worked, and international daily actives took off.
Q4 2024 is ALSO the exact quarter the U.S. engine stalled. Hmmmm…
I think this is two sides of the same event. The U.S. engine flattened, international picked up the slack at exactly the right moment, and the total DAU number kept climbing, so almost nobody went looking for a problem.
Here is what should give you pause about that second engine. On the Q2 call, Huffman disclosed that machine-translated content volume actually declined this quarter, filing it under international volatility.
So to recap: the growth engine making up for flat American users depends on translated content ranking in Google search. The international business has the same Google dependency as the U.S. portion!
Which brings me to my next point, about Google…
Uncomfortable Truth #5: Google Owns the Top of the Funnel
When I worked in digital media, one of our company’s websites broke something in its Google Search configuration and was immediately, comprehensively screwed!
I learned the hard way that Google controls the top of the funnel for basically the entire internet.
Google’s grip is tightest on properties where the website is the destination, and weaker on apps and sites people visit out of habit.
According to Reddit, 59% of daily actives are logged out, up from 55% at the start of 2025. Those are overwhelmingly people who arrived from a search result. SimilarWeb puts organic search at roughly 60% of visits to reddit.com.
Third-party data suggests a majority of Reddit sessions now happen on mobile. But the logged-out share of dailies is the number that has been going up, and that is the search-dependent cohort.
The Google risk is really three separate risks
Layer one is search indexing. Googlebot crawls Reddit and Reddit appears in ordinary search results. Reddit cannot block it without deleting itself from the internet’s front door.
Layer two is AI Overviews. Google’s AI answers run off that same index and exist whether or not Google has a licensing agreement with Reddit. Huffman said on the Q2 call that AI Overviews have yet to deliver anything close to the benefit of the traditional ‘10 blue links’.
Layer three is model training. This is what the reported $60 million a year deal actually governs, meaning Google’s right to train on Reddit content and serve it through Vertex.
Reddit’s reported negotiating posture is that it may restrict Google’s ability to train on Reddit data. That touches layer three, and does nothing to one and two, which is where the traffic risk lives.
Reddit made itself dependent on Google by choice
I’m not sure investors remember this, but Reddit made a deliberate decision to restrict Bing and DuckDuckGo from accessing its recent content.
I totally understand why Reddit put all its eggs in the Google basket at the time. But you cannot then claim in 2026 that you have strong negotiating leverage.
We have already seen the impact of Google search changes, twice
Google moved Reddit’s user base by double digits, twice, through ordinary product decisions.
Back in Q4 2024, a Google algorithm change hit Reddit’s logged-out users and the stock fell about 15%. Management’s response at the time was that volatility from Google is normal and cuts both ways.
Then came this quarter, Q2 2026. Search referrals were described as choppy and more volatile late in the quarter, U.S. dailies declined sequentially, and the stock fell 21%.
It is inevitable that this is going to happen again.
Uncomfortable Truth #6: The AI Money Is Not Coming to Save You
Why does consensus believe Reddit can put a gun to Google’s head and demand multiples of the current deal, when Google could make one quiet ranking adjustment and wipe out whatever Reddit gained?
First: why hasn’t a new, bigger licensing deal been announced?
Second: if it is inevitable, and the models get better every month, isn’t Reddit’s leverage shrinking the longer this takes?
Here is what I found in the filings. Remaining performance obligations (RPOs) are contracted revenue that has been signed but not yet recognized. RPOs peaked at $320.3 million in Q2 2024. They were $120.6 million as of the most recent disclosure, down 46% YoY, and they have declined every quarter since the peak.
The backlog is amortizing away and nothing is replacing it.
The hyperscalers have no trouble writing big checks. So the question is not whether they can afford Reddit. My read is that these AI licensing agreements tend to be worth less than people imagine, and the market is slowly realizing it.
Remember, China does not care about American copyright law. The open-source model wave out of China, DeepSeek, Qwen, Kimi and others, has been one of the most heated debates in AI all year. What stops those labs from scraping Reddit for free?
Google has YouTube. If the thesis is that authentic human perspective is the scarce input, Google owns the largest archive of humans talking on camera in the world and can surface more of it in AI Overviews whenever it wants.
The signal itself is degrading. Reddit’s prominence in AI Overviews is now widely understood, and there is an entire cottage industry working out how to influence Reddit threads to get their product recommended. Reddit is not a pure human signal, and the noise is growing.
Google already has the archive. Every scarcity argument bulls make is really about Reddit’s back catalog, which Google already gets in perpetuity under a signed agreement. A renewal only buys the forward flow, meaning content produced from 2027 onward, which is the content most exposed to manipulation.
When it was recently reported that Reddit was considering walking away from Google, RDDT stock went down, not up. Investors correctly priced the bluff as bad news for Reddit.
Conclusion
Now let’s talk about price targets…
