Reddit (RDDT) shares plunged 22.65% during intraday trading on Friday, as investors reacted to concerns over decelerating U.S. user growth and volatile search referral traffic, which overshadowed an otherwise strong quarterly earnings report. The sell-off came despite the company reporting second-quarter revenue of $804.9 million, up 61% year-over-year and well above analyst estimates of $730.3 million, along with adjusted earnings per share of $1.25 that beat the consensus estimate of $0.95.

The decline was primarily triggered by management's warning that search referral traffic remained "choppy" amid ongoing uncertainty around Google's AI-driven search changes. CEO Steve Huffman noted that search referrals became more volatile later in the quarter as Google's AI-powered search continues to evolve, and emphasized that Reddit is prioritizing direct engagement through its app over search-driven traffic. Additionally, U.S. daily active user growth decelerated to 6% quarter-over-quarter from 7% in the prior quarter, raising concerns about domestic platform engagement momentum.

The negative sentiment was further amplified by a wave of analyst price target cuts following the report. J.P. Morgan lowered its target to $185 from $200, Wells Fargo slashed its target to $142 from $187, Piper Sandler reduced its target from $215 to $195, and Wedbush trimmed its target from $250 to $221, among others. The combination of slowing user momentum, AI-related traffic uncertainties, and the stock's pre-earnings rally created a classic sell-the-news reaction as investors reassessed the company's valuation.