Reddit Tests Search Ads as Google AI Traffic Loss Hits Growth
Reddit tests search ads as Google AI cuts referrals, U.S. daily users fall 2%, while fourth quarter sales guidance misses Wall Street revenue expectations.
Summary
Reddit began testing search result ads on Tuesday, November 3, 2026, with select eligible advertisers as it seeks more revenue from existing users. Placements may reflect query context, with searches for “espresso station” surfacing machines, coffee or mugs, and “home office setup” showing monitors, desks or chairs. Reddit will assess user responses before refining the format.
Reddit beat Wall Street’s third quarter revenue and earnings per share estimates, but its stock fell after fourth quarter sales guidance of $1 billion to $1.03 billion missed the $1.05 billion expectation. Google’s AI powered search and AI Mode are answering queries directly, reducing referral clicks. Global daily active users were flat from Q2 at 130.3 million, while U.S. users fell from 53.2 million to 50.7 million, down 2% year over year. Reddit warned daily users could decline by a low double digit percentage by Q4 if the trend persists.
Reddit also plans a gradual shift to a logged in experience, beginning outside the U.S. Requiring accounts could deter unauthorized AI scraping while giving advertisers richer interest and behavior signals for more targeted, profitable campaigns.
Positives
- Reddit’s search ad test opens a new revenue source tied directly to users’ product and recommendation queries.
- Third quarter revenue and earnings per share exceeded Wall Street estimates despite subsequent concern about fourth quarter guidance.
- Global daily active users held steady quarter over quarter at 130.3 million in Q3.
- Required logins could deter unauthorized AI scraping while providing advertisers with stronger interest and behavior signals.
Risks & concerns
- Fourth quarter sales guidance of $1 billion to $1.03 billion fell below Wall Street’s $1.05 billion expectation.
- U.S. daily active users dropped from 53.2 million in Q2 to 50.7 million in Q3, down 2% annually.
- Google AI Mode provides direct answers that reduce referral clicks to Reddit and other websites.
- Daily active users could decline by a low double digit percentage by Q4 if the current trend continues.
- Search ads risk disrupting the user experience, which Reddit is evaluating during the limited advertiser test.