'21% Plunge' Reddit (RDDT), Will it Stage a Reversal with Google's Contract Renewal?

▲ Reddit (Reddit, RDDT), Artificial Intelligence (AI)/AI-generated image

Reddit (RDDT) stock plunged more than 21% in a single day after its earnings announcement. Wall Street identified the AI data contract renewal with Google as a key variable for a stock rebound.

According to Barron's on August 1 (local time), Google, a subsidiary of Alphabet (GOOGL), is utilizing Reddit's community conversations to train its artificial intelligence models. The contract payment Google has been making is $60 million annually. Both companies are negotiating a contract renewal. When reports emerged that Reddit was considering halting negotiations, the stock fell 8.3% in one day last week. After the Q2 earnings announcement, concerns about a decrease in US users compounded, causing the stock to drop by more than 21%. The cumulative decline this year is approximately 40%.

Reddit's core asset is user conversations accumulated in over 100,000 communities. Content containing real experiences and opinions is used as training data for artificial intelligence models. Conversely, the spread of AI search could pressure Reddit's visitors and advertising revenue. Reddit's advertising revenue over the past four quarters was $2.6 billion. The stock price is 314% higher than its IPO price of $34 in March 2024. It is 48% lower than its all-time high closing price of $270.71 recorded in September last year.

Dan Salmon, an analyst at New Street Research, said, “I still believe there is significant value in the real human information Reddit possesses.” Data licensing agreements accounted for approximately 6% of total revenue in 2025. Alec Brondolo, an analyst at Wells Fargo, projected that the combined annual value of renewed contracts with Google and OpenAI could reach $550 million. This is more than four times larger than the existing contract. Half Moon Capital, a hedge fund holding Reddit stock, set a target price of $295 even excluding new AI contracts.

Legal disputes over data ownership are also ongoing. Reddit filed a lawsuit in June 2025, alleging that Anthropic illegally collected data while training its large language model Claude. Anthropic denied the claims. Kirk Sigmon, founding partner of KellDann Law PLLC, analyzed that violations of user agreements, rather than copyright, are at the core of the lawsuit. Market forecasts compiled by FactSet anticipate Reddit's non-advertising revenue in 2027 to be $177 million, accounting for 4% of total revenue.

Reddit's estimated price-to-earnings ratio based on future 1-year earnings has decreased from 80x last year to 23x. The structure where the advertising business is the core revenue source remains. Data licensing business involves low additional cost burden, so contract expansion can lead to improved profitability. A Reddit spokesperson said, “Scarce assets tend to increase in value over time,” adding, “Large-scale accumulated authentic human conversations are becoming increasingly difficult to find.”

[Article Key Summary]

-Reddit's stock price dropped more than 21% in one day after its Q2 earnings announcement, as concerns about a decline in US users came to light.

-Wells Fargo projected that the combined annual value of renewed contracts between Reddit and Google/OpenAI could reach $550 million.

-The contract renewal with Google and the lawsuit against Anthropic are key variables that will determine the market value of Reddit's data and the expansion of its non-advertising revenue.

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