Reddit rallies after three-day slump as analyst calls selloff ‘excessive’

Reddit rallies after three-day slump as analyst calls selloff ‘excessive’


Reddit CEO Steve Huffman stands on the floor of the New York Stock Exchange (NYSE) after ringing a bell on the floor setting the share price at $47 in its initial public offering (IPO) on March 21, 2024 in New York City.

Spencer Platt | Getty Images News | Getty Images

Reddit shares rose more than 10% on Tuesday, reversing a three-day slump that coincided with a broader decline among technology companies.

Despite Tuesday’s gains, Reddit shares are still roughly 30% below the close on Wednesday.

Reddit’s stock market upswing was likely bolstered by a Loop Capital analyst note published Tuesday that reiterated a buy rating and characterized the company’s shares as “extremely attractive.” The analyst note said Reddit’s 50% drop on Wall Street in the past month “is excessive,” and that the social media company “has the biggest upside potential relative to Street estimates in our coverage universe.”

The company’s shares dropped over 15% in February after the company reported weaker-than-expected fourth-quarter user numbers as a result of a Google search change that temporarily hurt its search-derived traffic. Although Reddit said at the time that it had recovered from the algorithmic shift, the user-number miss spooked investors.

Reddit’s shares have since spiraled downward along with other tech companies like Apple, Nvidia and Tesla off of concerns related to President Donald Trump’s tariffs and growing fears of a recession. The seven most valuable tech companies lost over $750 billion in market value on Monday with Nasdaq experiencing its biggest decline since 2022.

Loop Capital managing director Alan Gould acknowledged in the note that investors are operating in a “risk-off market environment,” but he argued that Reddit “has been one of the top performing stocks over the past year,” aside from its most recent dip.

“RDDT wildly exceeded ours and Street estimates for 2024, which explains why the stock increased almost 7-fold from a $34 IPO price to a peak of $230 in less than a year,” Gould wrote, noting Reddit’s growing revenue and improved advertising tools, among other positive developments.

Reddit’s fourth-quarter sales grew 71% year-over-year to $428 million, which represents the fastest growth rate for any quarter since 2022.

“In our view, RDDT deserves the revaluation it had experiencing based on the growth it has shown in the recent earnings reports and future projected growth driven by the ability to narrow the ARPU gap, and data licensing possibilities,” Gould wrote.

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