Why Is Reddit (RDDT) Stock Down Today? Google AI Deal at Risk

TradingKey - Shares of Reddit (NYSE: RDDT) slumped 9.18% to $170.82 on July 22 following reports from the Wall Street Journal that Reddit may look to cut its content licensing deal with Google, which has been fueling the company's booming licensing revenue stream. Under the current agreement, Google is able to use a trove of 18 years' worth of user conversations for its artificial intelligence training. If Reddit does end or renegotiate the deal, it may mean near-term uncertainty for revenue, even if Reddit ends up cutting other, even better AI licensing deals. 

The selloff came on a nearly double-day average of volume at 6.49 million shares. Now the focus turns to Reddit's second-quarter earnings on July 30, where Wall Street sees $0.97 EPS and $732.82 million in revenue.

The Google AI Licensing Deal: Why It Matters

In short, Reddit's licensing deals give it access to AI companies and allow Reddit to sell access to all of its user-generated conversations and data for AI model training. Its deal with Google allows Google to use over 18 years of Reddit discussions from various topics for its own AI training. Such data is a major asset to AI companies because there is no way to replicate the massive volume and breadth of natural human conversations that exist on Reddit.

The Journal reported that Reddit was looking at whether to drop its Google agreement going forward, perhaps not renewing and looking at better terms. That would be concerning if licensing revenue was slowing while Google was seeing increasing value from Reddit's data.

Cutting the deal introduces near-term uncertainty. Reddit could look to renegotiate at a higher price, sign additional agreements with other AI companies, or perhaps use more of its data to develop its own AI product and services. But if Reddit does any or all of those things, its licensing revenue growth will be uncertain for some amount of time, impacting earnings visibility for a quarter or two. That's what the investors are pricing in, not any confirmed decline in future revenue.

What the Business Looks Like Without the Licensing Uncertainty

Ignoring the short-term jitters around AI licensing, Reddit's core business is firing on all cylinders. Revenue has grown roughly 70% over the last several quarters as a year-over-year measure, and Reddit's Q2 2025 revenue was up 77.9% from a year earlier to $499.63 million, significantly above the $424 million consensus. 

In addition, Reddit has beaten earnings estimates in each of the last eight quarters; Q2 2025 adjusted EPS came in at $0.45, versus Wall Street's $0.20. The company has delivered a 91.37% gross margin and 28.6% net margin over the last 12 months, showing profitability in its advertising, subscription, and licensing businesses.

Now all eyes are on Reddit's Q2 2026 earnings on July 30, where Wall Street sees $0.97 EPS on $732.82 million in revenue, for a year-over-year growth rate of about 47%. The general sentiment is still positive heading into the report.

Wedbush, Jefferies, and Piper Sandler all reiterated their constructive stances on the company in July, and the average price target remains around $221 with estimates ranging from $110 to $300. The wide price target range shows investors are unsure of future AI licensing revenue streams, not Reddit's advertising business.

RDDT Technical Setup - $166 Support, RSI 31, Key Levels

On the 4-hour chart, Reddit is now trading near $170.82 after slipping below its ascending trend line and closing under both its 50-day EMA ($186.05) and 200-day EMA ($175.92). The selling pressure drove the price to a daily low of $166.13, as shares tested the $166.10 support area.

Reddit (RDDT) Price Chart - Source: Tradingview

The Relative Strength Index (RSI) is now sitting near 31, suggesting that Reddit is close to being oversold, but we don't have a reversal confirmation yet. A move back above $166.10 could see buyers trying to push the price toward the 200-day EMA at $175.92 and subsequently higher to $176.41 and $187.33. A firm move below $166.10 would likely see the focus turning to $152.62, followed by $139.88 as the next downside target.

Given that Reddit is expected to announce Q2 earnings on July 30, the results and potential guidance regarding its AI licensing plans will ultimately determine if the selloff is a fleeting event or the start of a broader downturn.

Key Levels

• Trading Today: $170.82 (-9.18%); Daily range $166.13-$176.54; 6.49M volume vs 3.34M average.
• Catalyst: The Wall Street Journal reported that Reddit is considering terminating its Google AI licensing deal.
• Q2 Earnings: July 30, 2026; consensus estimates for EPS $0.97 and revenue $732.82 million.
• Key Fundamentals: 91.37% gross margin, 28.6% net margin, and no EPS miss in the past 2 years.
• Wall Street Price Target: Average $221 (22 analysts) and a range of $110 to $300.
• Support: $166.10, $152.62, $139.88.
• Resistance: $175.92, $176.41, $187.33.

Why Did Reddit Stock Fall on July 22?

Reddit stock dropped by 9.18% in today's session following The Wall Street Journal's report that Reddit is reconsidering its AI data licensing deal with Google, which has been a large source of the company's licensing revenue and profits.

The possibility of changing the terms or terminating the deal could lead to uncertainties about future licensing revenue. The recent sell-off in Reddit stock seems to be a result of the uncertainty about future licensing revenue rather than Reddit's main ad business.

Why Is Reddit's AI Licensing Business Important?

Reddit allows AI companies like Google access to over 18 years' worth of user-generated content to train its large language models (LLMs). This licensing business has emerged as a fast growing, high profit source of revenue as well as Reddit's primary core revenue, ads and subscriptions, with the Google deal estimated to be worth hundreds of millions of dollars, making it Reddit's largest AI licensing contract so far.

What Should Investors Watch at Q2 Earnings?

In the July 30 release, investors will be looking for any details on the licensing agreement with Google, the growth of licensing revenue, the status of ad revenue, and any third quarter outlook from management. Analysts expect earnings of $0.97 and revenue of $732.82 million.

Bottom Line

Reddit's 9% loss in the July 22 session reflects unease over its AI licensing policy, not any deterioration in its core operations. Its ad business and subscriptions are healthy and user activity is up as the company posts industry-leading margins and avoids earnings misses in two years. The issue is, what the impact of any shift in its Google licensing policy will be: will it result in short term revenue weakness or will higher priced contracts or new AI ventures unlock long term value.

The market is now waiting until July 30 when Reddit releases Q2 earnings, to see if management can reassure investors the company's ad business and AI licensing revenue can grow hand in hand. From a technicals standpoint, $166.10 is still the crucial support level and any recovery above the 200-day EMA at $175.92 would be a positive. 

For now, however, where Reddit goes next depends on whether managers can convince investors of the company's AI licensing business' long term value and growth potential.