Reddit plunges as Google AI search squeezes traffic

Oct 30 : Shares of Reddit tumbled 23 per cent in premarket trading on Friday after it warned Google's growing use of AI in search was hurting referral traffic and could shrink its user base, offering fresh evidence of AI-driven disruption.

Pinterest also fell 7.28 per cent after forecasting fourth-quarter revenue below Wall Street estimates, as a pullback by cross-border sellers in Europe weighed on its outlook.

Here are more details:

• Reddit's warning highlights how Google's shift toward AI-powered search, which can answer queries directly, is disrupting the flow of traffic to websites that have traditionally relied on the search engine for users

• Total daily active unique visitors could fall by a low double-digit percentage in the fourth quarter from about 130 million if referral traffic continues to fall, Reddit said

• JPMorgan analysts said the expansion of Google's AI Overviews and AI Mode, along with changes to how machine-translated content is ranked, has pushed search traffic down

• A reset in expectations is appropriate and the near-term outlook is increasingly clouded, said Piper Sandler analysts

• Meanwhile, Reddit said in a filing it had extended its cloud services agreements with Amazon Web Services and Google through 2029, committing to spend $880 million and $580 million, respectively, over three years

• Pinterest's third-quarter revenue of $1.17 billion missed analysts' estimates of $1.21 billion, according to data compiled by LSEG

• Pinterest forecast fourth-quarter revenue of $1.425 billion to $1.475 billion, below Wall Street estimates

• RBC analysts said changes to the EU's de minimis exemption hit cross-border sellers sooner and harder than expected, leaving Pinterest's European revenue flat

• Reddit had fallen about 44 per cent this year and Pinterest about 23 per cent through Thursday's close

• If current losses hold, Reddit is set to lose $5.7 billion in market value and Pinterest more than $800 million