Reddit Stock Plunges 20%: Six-Month Rally Stumbles

Reddit stock (RDDT) has taken a significant tumble, falling nearly 20% since last week's earnings report. This decline marks a notable slowdown in the company's six-month rally, which has seen its shares soar nearly sevenfold from its initial public offering (IPO) price in March 2024. Investors are now grappling with the question: what caused this sudden reversal, and is it time to reassess their positions in Reddit?

The earnings report released on February 12, 2025, revealed that Reddit's user growth had missed analyst expectations. The company reported 101.7 million daily active users (DAUs) in the fourth quarter, falling short of the estimated 103.1 million. This miss was attributed to a "transient" change in Google's search algorithm, which affected Reddit's traffic. However, several analysts maintained a bullish outlook on the stock, citing the company's strong financial performance and growth prospects.



Deutsche Bank analysts, for instance, maintained a "buy" rating and raised their price target to $235, implying about 18% upside from Thursday's intraday price. They attributed the user miss in the fourth quarter to a "transient" change to the Google Search algorithm and expected stronger traffic in the current quarter. Morgan Stanley analysts also raised their target to $210 from $200, advising clients to "buy the GOOGL blip dip" due to Reddit's broad-based strength across ad verticals and the potential benefits from the rollout of Reddit Answers, an artificial intelligence tool launched in December 2024.

However, not all analysts are convinced that Reddit's rally is sustainable. Some have raised concerns about the company's valuation, which remains high despite the recent pullback. Additionally, the broader market sentiment has shifted, with investors becoming more cautious amid economic uncertainty and geopolitical tensions. This change in market dynamics may have contributed to Reddit's stock decline, as investors seek safer havens for their capital.

As Reddit stock continues to digest the recent earnings miss and broader market dynamics, investors must weigh the potential risks and rewards of maintaining their positions. While the company's long-term prospects remain promising, the near-term outlook may be more uncertain. Those with a higher risk tolerance may see this pullback as an opportunity to buy the dip, while more risk-averse investors may choose to take profits and reassess their exposure to Reddit stock.

In conclusion, Reddit stock's 20% decline since last week's earnings report marks a significant slowdown in the company's six-month rally. Investors must now grapple with the question of whether this reversal is a temporary setback or a more fundamental shift in the company's prospects. As the market continues to evolve, investors should remain vigilant and adapt their strategies accordingly to capitalize on the opportunities that arise.