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Despite a significant 50% drop from its February peak, Reddit’s (RDDT) stock is failing to attract dip buyers, raising questions about its growth trajectory.
The social media platform’s struggle to compete with digital advertising giants like Meta (META) and Google (GOOG), particularly concerning user figures, has cast a shadow over its prospects. Concerns intensified following a change in Google’s search algorithm that impacted Reddit’s US traffic.
Short interest in Reddit has been increasing, and analysts are lowering their share price forecasts. One analyst recently initiated coverage with a “sell” recommendation, citing the company’s reliance on Google.
Bob Lang, founder of Explosive Options, noted, “It’s been super overvalued. Their growth rate is very strong, but they still are not making any money.”
While Reddit reported a GAAP earnings per share loss of $3.33 in 2024, it achieved two consecutive quarters of positive GAAP EPS in the latter half of the year.
Reddit’s challenges mirror those of other tech companies susceptible to market volatility. The Nasdaq 100’s correction, with a 10% drop from its peak, reflects investor caution towards risk assets.
Francisco Bido of F/M Investments suggests waiting for a healthier investment environment before buying, emphasizing the need for clarity on issues like tariffs.
Reddit’s stock initially surged over 500% from its $34 IPO price in March, fueled by deals to license content for AI model training. However, questions now surround the long-term potential of the AI industry.
Key Takeaways:
- Reddit’s stock is down 50% from its February high.
- Growth concerns and competition are weighing on the stock.
- Analysts are mixed on Reddit’s future prospects.
- The stock’s initial surge was partly driven by AI-related deals.
Is this dip a buying opportunity, or is Reddit facing deeper challenges? Investors should carefully consider the risks and potential rewards before investing in RDDT.