Analysts Warn Reddit May Lose $500 Million if Google AI Deal Ends

Reddit's potential decision to end its AI content deal with Google has sparked concern among analysts, who warn of significant financial and operational repercussions. Wells Fargo estimates that Reddit could lose $500 million in AI licensing revenue and face challenges with user engagement if it terminates the agreement. DA Davidson highlights the risk to daily active user growth, particularly among logged-out users, though they caution against premature conclusions.

During the first-quarter earnings call, Reddit CEO Steve Huffman emphasized the platform's vast collection of human-generated content, accumulated over two decades, as a key asset for AI training. The current contract, signed in 2024, sees Google paying Reddit $60 million annually for access to this data. Analysts from RBC Capital Markets, Wells Fargo, and DA Davidson have maintained their ratings and price targets despite the uncertainty.

Reddit's stock (RDDT) dropped nearly 9% following the Wall Street Journal report, which revealed executives are reevaluating the Google partnership. RBC analyst Brad Erickson described the potential move as a 'significant step backward.' However, some retail traders on Stocktwits remain optimistic, expecting negotiations to yield better terms.

As Reddit prepares to report its second-quarter earnings on July 30, analysts predict $731 million in revenue and $1.45 per share in adjusted profit. The stock has lost over 26% year-to-date but gained more than 15% over the past year.