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RedditRDDT stock tumbled Wednesday following a report that the company could limit Google's access to its trove of user forums.
Reddit has discussed "shutting off" Google from using its content for AI, the Wall Street Journal reported late Tuesday. The report said Reddit, along with publishers such as Politico and Reuters, is growing frustrated with Google's AI overviews siphoning away vital search traffic.
Reddit's relationship with Google is a particularly important one. Google is the top external source of traffic to Reddit's forums. Further, Reddit struck a $60 million annual deal in 2024 with Google parent AlphabetGOOGL that allows Google to train its AI models on Reddit's billions of posts. Third-party data has found Reddit forums are among the most cited in Google's AI overviews.
The internal discussions at Reddit come as the company is in talks to renew its content licensing agreement with Google, the Wall Street Journal report said.
Reddit executives are "assessing what the upside is of continuing to feed its content to Google," according to the report.
The report cited unnamed sources. Reddit did not immediately return a request for comment from Investor's Business Daily.
Reddit Stock Slides
On the stock market today, Reddit stock was down nearly 10% to 167.49 in recent trades.
After a rough start to the year, Reddit stock entered Wednesday's trading more than 30% below a 52-week high from September. But the stock had recovered some losses in recent weeks, climbing 15% since the start of May.
"Investor confidence had come up in recent months for not only Reddit achieving a favorable outcome with Google, but also that it could be in a position to announce it on an upcoming earnings report, so this would be a significant step backwards," RBC Capital analyst Brad Erickson wrote in a client note Wednesday morning.
Erickson rates Reddit stock as sector perform, or neutral.
The RBC analyst said Reddit is seeking variable compensation from Google for using its data, rather than the "data for dollars" arrangement of its 2024 deal.
Reddit's "durable standing at the top of AI Overview citations" gives it some leverage in the talks with Google, Erickson said. But "Google is Google and has every incentive to not set a precedent for content cost inflation," he said.
Wednesday's slide sent Reddit stock below its 50-day moving average line for the first time since late June, according to IBD MarketSurge charts.
Reddit will report its second-quarter results on July 30.
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