Reddit's AI Data Standoff: Google Deal on the Brink, Anthropic in Court, and a Record Quarter Nobody's Celebrating

Reddit just posted the kind of quarter most public companies would frame and hang on the wall. Revenue up 61 percent. Net income margins at 31 percent. Free cash flow of $261 million, and a guidance raise that blew past consensus. It was the eighth straight quarter of 60-plus percent revenue growth, and the stock sold off anyway. That is not an oversight. That is the market telling you the AI data licensing story — the one that helped justify this valuation — has turned into a negotiation with an uncertain outcome.

The quarter itself was close to flawless. Revenue hit $805 million, up 61 percent. Net income came in at $253 million, a 31 percent margin, and earnings per share of $1.25 doubled. Adjusted EBITDA ran at 43 percent of revenue. Daily active users reached 130.3 million, up 18 percent, while weekly actives crossed 514 million. Advertising — still the engine — grew 64 percent to $762 million. The only blemish: US daily actives, up 6 percent to 53.2 million, just shy of the 54 million analysts wanted. Management guided Q3 to $860 to $870 million against a consensus near $828 million. By any sane reading, this is a company executing.

And yet the number the market keeps staring at is the small one. Reddit's "other" revenue line — essentially AI data licensing — grew just 24 percent to $43 million in the quarter. That is slower than the overall business, and for a company whose bull case leans on selling its corpus to AI labs, a decelerating licensing line reads like a warning.

Here is what is happening. Reddit's deal with Google, worth roughly $60 million a year, expires right now, and the Wall Street Journal reports Reddit is prepared to walk away rather than re-sign on Google's terms. The OpenAI deal, around $70 million a year, sits alongside it. Combined, the two contracts are worth about $130 million a year — real money, though not the kind that moves the needle on a roughly $30 billion business.

Wells Fargo thinks that is the floor, not the ceiling. The bank sees licensing revenue quadrupling to roughly $550 million a year as AI labs compete for access to the largest archive of human conversation on the internet. There is no real substitute for that corpus. Google trained on it, OpenAI trained on it, and Anthropic trained on it — which is why Reddit is now suing Anthropic, demanding payment for training data it says was scraped without a deal.

The bear case is equally coherent. AI search engines — powered by all that licensed data — increasingly answer questions that used to send people into Reddit threads. The US daily active user miss, however small, is the first concrete sign cannibalization may be real. If Google decides it no longer needs Reddit's data at any price, or AI-generated answers keep siphoning the queries that once produced pageviews, the ad business that funds everything starts to erode. In that world, walking away from Google is not leverage. It is a cliff.

The market is pricing both scenarios at once. The stock trades near the low end of its 52-week range, down more than 40 percent from its highs, at roughly 16.6 times forward earnings — a multiple that assumes real trouble. The trailing multiple sits near double that — what happens when the market expects earnings to compound if the licensing story holds. Analysts still rate the name a Buy, with a mean target well above the current quote. A beaten-down price alongside a bullish sell side usually means one thing: the Street thinks the standoff ends with Reddit getting paid, not walking into a void.

The honest read is that this is a genuine standoff with a genuine prize. Reddit holds the asset every AI lab needs, and it is finally acting like it. If the Google renegotiation lands anywhere near Wells Fargo's numbers, this muted reaction to a record quarter will look like an entry point. If Reddit blinks — or AI search eats the engagement that makes the data valuable — the multiple has room to compress further. That is why this is a neutral story, not a bullish one. The company is executing flawlessly on a business model being renegotiated in real time, and until the ink dries on the Google deal, the market is right to withhold the celebration.

Disclosure: The Signal holds no position in RDDT. Positions may change. This is not financial advice.