Reddit’s stock faced a notable decline in early trading on Wednesday, dropping as much as 8%, extending a 5% downturn from the prior session. This downturn follows revelations regarding a significant reduction in Reddit’s content usage by the popular AI chatbot, ChatGPT. According to data from AI search engine tracker Promptwatch, Reddit content was referenced in just 2% of ChatGPT responses on Tuesday, a sharp decrease from 9.7% the previous month. Notably, at its peak in September, Reddit was included in over 14% of ChatGPT answers.
Despite this decline, Reddit remained the leading social platform referenced by ChatGPT, with an average citation rate of 4.3% during September. In contrast, LinkedIn, the second-most-cited platform, only accounted for 0.4% of ChatGPT’s responses.
Reddit has carved out a niche for itself as a social media equivalent of a search engine, with many users incorporating “reddit” into their searches for advice or information. This reliance on user-generated content puts Reddit at risk amid the increasing prevalence of AI chatbots, which began gaining traction with the launch of ChatGPT in late 2022. However, Reddit has proactively mitigated this risk by entering into substantial data licensing agreements with OpenAI, the creator of ChatGPT, and Google. Additionally, the platform has developed its own AI-driven search and advertising tools.
Recent data from Promptwatch highlighted a significant drop in Reddit’s citations in ChatGPT responses around mid-September. It was also reported that Reddit was pursuing its next data licensing agreement with Google, focusing on dynamic pricing that would allow for payments to vary based on the frequency with which Reddit’s content is utilized in AI responses. This prospect had initially driven shares higher in mid-September.
Investors have been closely monitoring Reddit’s web traffic, particularly daily active user counts, as fluctuations are often influenced by changes to Google Search’s algorithm. Previous quarterly reports from February and May revealed investor concerns regarding traffic volatility, resulting in declines in Reddit’s stock.
Despite the ongoing challenges, the majority of Reddit’s revenue is derived from advertising on its platform. In its second quarter, the company’s advertising revenue soared nearly 84% to $465 million, representing 93% of its total revenue for the period ending on June 30. This rapid revenue growth marked the quickest increase Reddit has seen in three years, underscoring the platform’s resilience in a competitive landscape.
