Reddit shares dropped about 6% on Tuesday after reports emerged that negotiations to renew the company's artificial intelligence licensing agreement with Google are hitting snags. The potential non-renewal puts $60 million in annual revenue at risk for the social media platform, according to sources familiar with the matter.
The $60 million question
The deal, which allows Google to train its AI models on Reddit's user-generated content, is a significant revenue stream for the company. Losing it would mean a roughly 6% hit to Reddit's annual revenue, based on the company's most recent financial disclosures. The talks are said to be stalled over pricing and data access terms, though neither Reddit nor Google has publicly commented on the status of the negotiations.
What the reports indicate
News of the friction first surfaced in a report from a financial news outlet, citing unnamed sources close to the discussions. The report did not specify whether the disagreement is likely to lead to a complete breakdown or if both sides are still working toward a compromise. Reddit's stock had already been under pressure this year as investors weigh the company's ability to monetize its user base beyond advertising. The AI licensing deal was seen as a key growth driver.
Reddit's AI licensing strategy
Reddit struck the original agreement with Google in early 2024, shortly after its initial public offering. The deal was part of a broader push by the company to license its vast trove of conversation data to AI developers. Google uses the data to improve its large language models, including Gemini. The arrangement was considered a win-win: Reddit got a new revenue source, and Google got high-quality, real-world training data. But as the renewal deadline approaches, the two sides appear to be at odds over valuation.
Reddit's reliance on this single deal makes the outcome particularly consequential. The company has not disclosed how much of its total revenue comes from the Google agreement, but the $60 million figure represents a meaningful chunk. For context, Reddit reported $1.1 billion in revenue for the 2024 fiscal year.
What happens next
Investors will be watching for any official statement from Reddit or Google in the coming days. The company's next earnings call, scheduled for late April, could provide more clarity — or more uncertainty. If the deal falls through, Reddit may need to find other AI companies willing to pay similar rates for its data. But for now, the market is pricing in a real risk that the $60 million stream could dry up.
