Reddit Stock Plummets: What's Behind the Fall?

Reddit (RDDT) stock took a nosedive on Thursday, February 22, 2025, with shares dropping by 9.4% amid a broader market sell-off. The social media company's share price was down 9.4% as of 2:45 p.m. ET, with the S&P 500 index and the Nasdaq Composite index also experiencing declines of 0.7% and 0.8%, respectively. This article explores the factors contributing to Reddit's stock price decline and the potential implications for the company's future performance.

Macroeconomic Concerns and Walmart's Guidance

One of the primary factors behind Reddit's stock price decline is the macroeconomic concerns raised by Walmart's guidance. Walmart published its fourth-quarter earnings results before the market opened on Thursday, posting sales and earnings that topped Wall Street's forecasts. However, the company paired its strong Q4 print with forward revenue guidance that raised concerns about the health of the U.S. consumer economy. Walmart expects sales growth to decelerate to between 3% and 4% this year, compared to 5.6% in its last fiscal year. This guidance suggests a slowdown in consumer spending, which could translate to weaker ad revenue for Reddit and other growth-dependent tech stocks.



X's Latest Funding Round

Another factor contributing to Reddit's stock price decline is the latest funding round for X, the company formerly known as Twitter. According to recent reports, X is looking to raise capital by selling stakes valuing the company at $44 billion, the same price that Tesla CEO Elon Musk acquired the business at in 2022. With Reddit's market capitalization currently around $31 billion, investors may have concerns about the company's valuation and growth prospects compared to X. While Reddit has recently seen strong sales thanks to licensing its data for the training of artificial intelligence (AI) models, its platform's core business has historically monetized at lower levels per user. This could cause investors to assign lower valuation multiples to Reddit stock.

Reddit's Earnings Report

Reddit reported strong earnings results on Wednesday, February 21, 2025, with revenue of $428 million, a 71% increase year-over-year, and earnings per share of $0.47, sharply higher than the year-ago quarter. However, daily active users (DAUs) fell short of analyst expectations at 101.7 million versus 103.1 million. This miss in user growth may have contributed to the stock price decline, as investors may be concerned about the company's ability to maintain its user base and ad revenue growth.



Looking Ahead

Despite the recent stock price decline, Reddit's recent financial performance has been strong. The company has seen rising revenue and users compared to a year ago, and its stock has soared nearly sevenfold from its IPO price in March 2024. Analysts expect Reddit's revenue to grow by 64% year-over-year in the fourth quarter, with earnings of $47.6 million. While macroeconomic concerns and the latest funding round for X may present challenges for Reddit, the company has demonstrated resilience in the face of economic headwinds and has the potential to continue growing even in the face of these factors.

In conclusion, Reddit's stock price decline on Thursday, February 22, 2025, can be attributed to a combination of macroeconomic concerns raised by Walmart's guidance, the latest funding round for X, and a miss in user growth in the company's earnings report. While these factors may present challenges for Reddit, the company's strong recent financial performance and growth prospects suggest that it remains well-positioned for long-term success. Investors should continue to monitor Reddit's progress and consider the company's fundamentals when making investment decisions.