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Reddit Shares Drop 14% Amid Growth Concerns and Leadership Sales

Reddit's shares have plunged 14% as analysts highlight growth concerns. Selling by CEO Huffman adds to the stock's volatility, prompting debates over the company's future.

Date: 
AI Rating:   5

Stock Performance Overview

Shares of Reddit (NYSE: RDDT) have dropped 14% as of midday Thursday, signifying a shift in market sentiment towards the company's outlook. Following a $15.8 million stock sale by CEO Steve Huffman, there is increasing skepticism regarding Reddit's future performance.

Reddit previously exhibited strong growth since its public listing in March 2024, where the stock price surged significantly from an opening price of $46 to a peak of $225 earlier this year. Despite this remarkable rise, the current trading price remains around $110, although this still represents a 140% increase since going public. The recent decline indicates that markets may be pricing in future challenges ahead.

Concerns Over Google Dependence

A critical concern flagged by analysts is Reddit's dependence on Google for traffic and visibility. Analysts from Redburn Atlantic suggest that the boost from changes in Google's algorithm that favored Reddit is now peaking, leading to fears that Reddit's traffic may stabilize or decline and could be negatively impacted by future algorithm changes.

Moreover, these analysts maintain a sell rating on Reddit's stock with a price target of $75, indicating a lack of confidence in the company's trajectory amidst these challenges.

Market Valuation and Earnings Perspective

Further complicating the situation, Deutsche Bank's analyst Benjamin Black believes that concerns about Google and growth have already been factored into the stock price, although Reddit remains priced at 36 times its forward earnings, which is relatively high compared to its recent historical performances.

Investors looking at this scenario should weigh the potential for volatility in Reddit's shares in the near term against its long-term prospects in monetizing social media, which remains a challenge for the industry as a whole.

Stocks:  RDDT