(Bloomberg / Carmen Reinicke) — The gloomy sentiment around Reddit Inc. has failed to dissipate after its shares fell 50% from a February high, with volatile technology stocks under pressure.
The social media platform has struggled to recover since an earnings report in February showed that it is failing to keep up with larger digital advertising peers such as Meta Platforms Inc. and Alphabet Inc.’s Google. Reddit’s outlook seemed precarious because its traffic took a hit from a change in Google’s search algorithm.
In recent weeks, the short interest in Reddit — a proxy for the volume of bets against the company — has ticked up, and forecasts for the company’s share price have fallen. One analyst opened coverage of Reddit this month with a recommendation that investors sell the shares, in part due to the company’s heavy reliance on Google. Reddit shares were up about 1% in early trading Friday.
“It’s been super overvalued,” Bob Lang, founder and chief options analyst at Explosive Options said of Reddit shares. “Their growth rate is very strong, but they still are not making any money”
To some degree, Reddit’s problems are the same ones facing all the tech companies that tend to rise more than the broader market but also fall faster during moments of turmoil. The Nasdaq 100 is in correction territory, down more than 10% from a recent peak, and the biggest technology stocks are slumping as investors are finding few reasons to snap up risk assets at a discount. Even two back-to-back positive days for the Nasdaq 100 earlier this week weren’t enough to meaningfully boost confidence.
“These relief rallies are not an indication that things are great. They’re an indication that a lot of people don’t know what’s coming,” Francisco Bido, senior vice president and portfolio manager at F/M Investments, said of the broader market’s movements. “Unless I see this thing reverse in a really healthy investment environment, and a lot of clarity when it comes to the tariff situation and all that, then I’m not buying it yet.”
At its February peak, Reddit’s stock had risen over 500% from the $34 initial public offering price last March. Some of the enthusiasm was due to a series of deals in which Reddit was paid to allow its content to be used for training artificial intelligence models. More recently, though, there have been questions about the long-term growth prospects for the artificial intelligence industry.
Reddit faces additional scrutiny because of its relatively short tenure on Wall Street. As the earliest investors reach the end of their lockup periods, some will look to cash out their stakes, putting further selling pressure on the stock, which is still up 200% since the IPO.
On Wall Street, the average price target from analysts has fallen to about $195 from $207 a month ago. That still offers a roughly $85 upside from where shares currently trade following Thursday’s 8% slump. Only three analysts recommend that investors sell, in comparison to the 15 with a buy rating and seven with a hold.
In a note on March 20, Guggenheim analysts led by Michael Morris lowered their price target on the stock to $170 from $210 to reflect the contraction of multiples across the digital ad peer group. Still, Morris’s team reiterated their optimism.
“Our buy rating reflects our confidence that Reddit is in the early stages of executing on a robust, multi-year user and monetization growth opportunity,” Morris wrote, adding that he sees potential for user numbers to begin growing again in the first quarter of 2025, with even more opportunity ahead as the company expands in international markets.
Vince Lorusso, president and portfolio manager at Clough Capital Partners LP, is still bullish on the company. He may, though, look for opportunities to sell in the short term because of the uncertainty hanging over the markets.
“Along the way, if there’s going to be volatility and entry points or places to take some profits, we’ll look to do that,” he said.
Top Tech News
- Ubisoft Entertainment SA shares jumped as much as 10% after the video game maker said it will carve out a unit including Assassin’s Creed, Far Cry and Tom Clancy’s Rainbow Six into a subsidiary with an enterprise value of about €4 billion ($4.3 billion).
- The rush into artificial intelligence has minted fortunes worth a collective $71 billion for 29 founders.
- Chinese automakers missed out on a European rebound in EV demand last month, as more-established manufacturers like Volkswagen AG captured the biggest part of a jump in sales.
- Taiwan is investigating whether China’s leading chipmaker Semiconductor Manufacturing International Corp. illegally poached local engineers as part of an effort to access the island’s cutting-edge chip technology.
- CoreWeave Inc. raised $1.5 billion in its initial public offering, a downsized deal that reflects how stock market volatility is hurting demand for even highly anticipated listings.
Earnings Due Friday
- No major earnings expected
–With assistance from David Watkins.
(Adds stock move after market open in third paragraph)
More stories like this are available on bloomberg.com
©2025 Bloomberg L.P.