Reddit Stock Plummets Following Earnings Report, Despite Traffic Recovery
Despite a recent six-month rally that quadrupled its shares, Reddit (RDDT) has experienced a 23% decline since its earnings report. Last week, the social media platform released its fiscal fourth quarter results.
While earnings per share exceeded expectations, Reddit's daily active users decreased from the previous quarter due to a Google Search algorithm adjustment that impacted website traffic.
However, CEO Steve Huffman stated that Google Search traffic has since rebounded in the first quarter. Despite this positive update, shares plunged by 5% the following trading day and have continued to decline over the past week, marking their largest five-day loss (19%) since April 2024.
Huffman and his trust reportedly sold $70.5 million worth of Reddit shares on Tuesday, representing his largest stock sale to date. This sale follows a smaller transaction of 1,400 shares in January.
Additionally, Reddit shares fell by 7.5% on Thursday following an inquiry by the US Federal Trade Commission into tech platforms' policies on banning users for certain content. Reddit's policies prohibit bullying, harassment, and sexually explicit content.
Despite its recent decline, Reddit stock remains up nearly 220% from six months ago. Investors are optimistic about the platform's growing advertising revenue and partnerships with AI companies like OpenAI, which licenses user data for model training.
Wall Street analysts generally maintain their Buy ratings for Reddit stock. However, JMP Securities analyst Andrew Boone acknowledges "elevated buyside expectations" prior to the earnings report.