Both Reddit and Pinterest have seen shares drop as their search traffic suffers at the hands of Google’s AI overviews.
Reddit shares fell 29% on Friday (30 October) – its largest ever, single-day, stock market drop and the lowest level in more than a year.
It comes after the platform warned Google’s AI search features, like AI Overview and AI Mode, have hurt traffic to the site, which has led to its user base shrinking.
Forum platforms like Reddit and Quora have been hit particularly hard by AI features. Both are question-based platforms that have traditionally relied on high-traffic search referrals.
But AI Overviews now appears in as much as 39% of all US desktop Google searches, often answering these question-based queries without a user ever having to click-through, Comscore research found.
In fact, SparkToro research outlined that 60% of all Google searches now end without a click. For Reddit, this could be catastrophic for referral traffic.
Growth in revenue not enough
In its Q3 earnings letter to shareholders, the Steve Huffman, chief executive and co-founder, highlighted that search referral traffic was down “meaningfully in Q3, with the decline accelerating later in the quarter”.
The company has offset some of the decline by “driving reach primarily through user marketing and also by continuing to improve the product”, he said. This is notable in its financial results for the quarter.
Reddit’s revenue increased by 53% year-on-year (YoY) to $895m, with advertising revenue growing 54% YoY to reach $847m. While daily active users unique (DAUq) up by 12% YoY to an average of 130.3m.
Despite the growth in DAUq, Huffman pointed out that decline from search traffic continued into the early part of Q4, dropping by more than one million on average per week during October.
“If this rate of decline continues, current trends would suggest that total DAUqs could fall in Q4, by a low-double-digit percentage from our current base of 130 million DAUqs,” he warned.
On this trajectory, Reddit could lose as much as $7bn in market value if current losses hold.
Similarly, rival platform Pinterest’s shares also fell as much as 8%, and the company missed analyst’s estimates for third-quarter revenue and profit. The platform could lose around $900m in market value if current losses are sustained.
Pinterest also reported a growth of 12% in revenue to $1.17bn – but pressure for advertising growth meant the company missed analyst’s estimates for both revenue and earnings.
Global monthly active users increased by around 10% to a record 661 million. Regionally, growth in Europe stood at 7%, and 4% in both the US and Canada.
Bill Ready, chief executive of Pinterest, said: “Our differentiated AI-driven visual search and shopping experiences are making Pinterest increasingly valuable for users and advertisers alike. We are focused on sharpening our execution, scaling our performance advertising solutions, and building an ecosystem that captures high-intent discovery and converts it into durable, long-term growth.”
Stock for both Reddit and Pinterest has fallen around 44% and 23%, respectively, this year through to their latest close.
Google is not immune
While tech platform’s traffic is at the mercy of Google’s AI features, Google itself is struggling to grow.
Google’s parent company, Alphabet’s Q3 earnings outlined that growth in search advertising revenue is falling, coming in at just 12% YoY in Q3 to $63bn – down from 17% growth in Q2 and 19% in Q1.
But, overall revenue for the tech giant has increased by 25% YoY to $127.6bn – its thirteenth consecutive quarter of double-digit growth.
Google and Alphabet chief executive, Sundar Pichai, said: “Search has strong momentum. Our AI investments are driving increased usage and overall query growth, including commercial queries. In fact, our year-over-year query growth rate is the highest it’s been in the last five years.”
“[…] We are building one seamless experience across AI Overviews, AI Mode, and traditional Search. And people are using our AI features more, searching in entirely new ways. Their queries are longer, personalised, and multimodal,” he went on to add.
“Queries in AI Mode are on average three times longer than traditional searches, and one in five AI Mode searches globally use voice, images, or documents. We’ve now crossed over 50 billion visual searches per month.”
