Reddit (RDDT) stock extended its decline on Wednesday, falling as much as 10% and marking a second consecutive day of losses, after new data revealed a sharp drop in the use of its content within ChatGPT responses.
According to AI search engine tracker Promptwatch, Reddit content was cited in just 2% of ChatGPT answers on Tuesday, down from 9.7% the previous month. At its peak earlier in September, Reddit was referenced in more than 14% of ChatGPT responses, highlighting a notable decrease in a short period. Despite the drop, Reddit remains the most-cited social platform in ChatGPT, with an average of 4.3% of responses including its content during September. By comparison, LinkedIn, the second-most-cited platform, appeared in just 0.4% of responses.
Reddit has long been leveraged by users as a social-media search engine, with people often appending “reddit” to queries seeking advice or instructions. While Google (GOOG, GOOGL) continues to dominate traditional online search, the rise of AI chatbots like ChatGPT since late 2022 has introduced a potential existential challenge for platforms like Reddit.
To address this threat, Reddit has struck billion-dollar data licensing agreements with both OpenAI and Google, allowing its content to be used in AI training models. The company has also introduced its own AI search and advertising products.
The steep decline in citations comes amid reports that Reddit is negotiating its next data licensing agreements, including talks with Alphabet-owned Google about dynamic pricing, which would adjust payments based on how frequently Reddit content is used in AI outputs. Bloomberg reported that such deals could increase revenue for Reddit when its content is cited more often in AI-generated responses. Shares of Reddit surged in mid-September amid these reports, reflecting investor optimism about potential licensing revenue.
Some analysts see the recent drop in ChatGPT citations as a short-term blip rather than a long-term trend. Andrew Freedman, a Hedgeye Risk Management analyst who holds a short position on Reddit, noted that the data could influence upcoming licensing negotiations. “I generally believe that OpenAI and Google have much more leverage in licensing renewals than Reddit management thinks,” Freedman wrote.
Outside of its AI licensing deals, Reddit’s stock and investor sentiment are also closely tied to website traffic, including daily active users, which can be affected by changes in Google Search algorithms and other broader trends in online engagement.
As Reddit navigates the shifting landscape of AI and search, investors will be watching both its licensing outcomes and platform usage metrics to gauge its long-term growth prospects.
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