This Analyst Believes Reddit Not Renewing Google AI Content Deal Would Be A Step Backward

• Wells Fargo expects Reddit to lose $500 million in AI licensing revenue and face user headwinds if it walks away from Google.
• DA Davidson said the move could be a risk to Reddit's overall daily active user growth in the coming quarters.
• Reddit CEO Steve Huffman, during the first-quarter earnings call with analysts, had highlighted the importance of the valuable data the platform has accumulated for more than two decades.

Shares of Reddit (RDDT) tumbled nearly 9% by Wednesday afternoon after The Wall Street Journal reported that the company has considered shutting off Google’s access to the platform’s content for AI use. 

The development has prompted fresh commentary from at least three analysts over possible implications for the social media platform.

As of the writing, the stock was down 9% and among the top trending tickers on Stocktwits.

Wall Street Takeaway

RBC Capital Markets analyst Brad Erickson views the news as a negative for Reddit. Erickson believes the move "would be a significant step backwards,” TheFly reported.

Wells Fargo expects Reddit to lose $500 million in AI licensing revenue and face user headwinds if it walks away from Google, putting pressure on growth, revenue, and valuation in the near term. However, the move could support healthier engagement in the long run if the firm brings down reliance on external AI content usage.

DA Davidson said the move could be a risk to Reddit's overall daily active user growth in the coming quarters, and particularly logged-out users, but it doesn’t want to “jump the gun and make the assumption," as something might work out between them, benefiting Reddit while also powering Google’s AI search.

Wells Fargo, DA Davidson, and RBC continued to maintain their respective ratings and price targets on Reddit following the WSJ report.

Zooming In On Reddit-Google Contract

The companies struck an agreement back in 2024 for Google to pay Reddit $60 million annually for access to the vast collection of human content and posts to train AI models. The latest WSJ report said Reddit executives are evaluating the benefits of continuing their relationship with Google.

Reddit CEO Steve Huffman, during the first-quarter earnings call with analysts, had said, “There is no artificial intelligence without actual intelligence, and that comes from Reddit,” touting the valuable data his platform has accumulated for more than two decades, which companies strongly prefer over AI content.

The WSJ report also comes ahead of second-quarter earnings, scheduled for July 30. Analysts expect the company to generate $731 million in revenue and $1.45 per share in adjusted profit, according to data from Koyfin.

What Do Retail Traders Think About RDDT

On Stocktwits, retail sentiment about RDDT turned ‘bullish’ from ‘bearish’ over the last 24 hours, with many users expecting Reddit and Google to come to the table and negotiate better terms.

RDDT stock has lost more than 26% year-to-date but has gained over 15% in the last 12 months. 

For updates and corrections, email newsroom[at]stocktwits[dot]com