TLDR
- Reddit stock dropped 12.3% amid negative analyst coverage
- CEO Steve Huffman sold $15.8 million in shares on March 14
- Redburn Atlantic initiated coverage with “sell” rating and $75 price target
- Analysts question sustainability of recent user growth, attributing it to Google algorithm changes
- Wall Street firms have mixed views with price targets ranging from $75 to $220
Reddit shares tumbled more than 12% on Monday as the social media platform faced critical analyst coverage and news of significant stock sales by its CEO.
The stock fell 12.3% to close at its lowest point in recent weeks. This drop happened while the broader market was also down, with the S&P 500 falling 1.2% and the Nasdaq Composite dropping 1.4%.
One major factor driving the decline was a new analyst report from Redburn Atlantic. Analysts James Cordwell and Joseph Barker initiated coverage of Reddit with a “sell” recommendation.
The Redburn team set a price target of $75 for Reddit shares. This represents the lowest target among Wall Street analysts covering the stock.
The analysts questioned the sustainability of Reddit’s recent user growth. They described this growth as a “gift” from Google’s algorithm changes.
These algorithm adjustments helped Reddit nearly double its user base over the past 18 months. However, the analysts argue that most new visitors are one-time users looking for specific answers.
These casual visitors rarely convert to logged-in users. This distinction matters because logged-in users are much more valuable to Reddit’s business model.
“There is clear evidence that the boost to traffic and visibility from these changes is hitting a ceiling,” the analysts wrote. They added ominously, “what Google giveth, it will taketh away.”
The report also raised concerns about Reddit’s advertising potential. As a primarily text-based platform, Reddit may face challenges competing with more visual social media platforms like Instagram and TikTok.
CEO sold approximately $15.8 million of stock
Adding to investor concerns, SEC filings revealed that Reddit CEO Steve Huffman sold approximately $15.8 million worth of the company’s Class A Common Stock on March 14.
The transactions occurred at prices ranging from $123.93 to $130.55 per share. The sales were executed through a pre-established trading plan under Rule 10b5-1, which Huffman set up in May 2024.
Despite the recent sell-off, Reddit stock still shows a 118% gain over the past year. The company maintains strong fundamentals with a market capitalization of $22.7 billion.
Reddit boasts impressive gross profit margins of 90.5%. The company also has a healthy balance sheet with more cash than debt.
Wall Street remains divided
Wall Street remains divided on Reddit’s prospects. Several firms recently raised their price targets despite the current volatility.
Piper Sandler increased its target to $220 and maintained an “Overweight” rating. The firm cited a rebound in user engagement after a temporary dip related to Google Search traffic fluctuations.
Raymond James adjusted its price target to $200 with a “Strong Buy” rating. The firm highlighted Reddit’s large user base and the value of its content in the AI landscape.
BofA Securities raised its target to $190 while keeping a “Neutral” rating. They acknowledged Reddit’s strong performance but noted challenges in user growth.
JPMorgan increased its price target to $185 but maintained a “Neutral” rating. The firm pointed to advertising revenue growth but expressed concern about the impact of Google search changes.
Not all analysts are optimistic. Bernstein SocGen Group reaffirmed an “Underperform” rating with a price target of $150. They cited challenges in user engagement and competitive pressures in digital advertising.
The stock’s recent performance and the mixed analyst views reflect ongoing uncertainty about Reddit’s ability to maintain growth and expand its advertising business in a competitive digital landscape.
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