In This Article:
(Bloomberg) -- The gloomy sentiment around Reddit Inc. has failed to dissipate after its shares fell 50% from a February high, with volatile technology stocks under pressure.
Most Read from Bloomberg
-
Trump Slashed International Aid. Geneva Is Feeling the Impact.
-
Bank Regulators Fight for Desks as OCC Returns to New York Tower
The social media platform has struggled to recover since an earnings report in February showed that it is failing to keep up with larger digital advertising peers such as Meta Platforms Inc. and Alphabet Inc.’s google, which have higher user figures. Reddit’s outlook seemed precarious because its US traffic took a hit from a change in google’s search algorithm.
In recent weeks, the short interest in Reddit — a proxy for the volume of bets against the company — has ticked up, and forecasts for the company’s share price have fallen. One analyst opened coverage of Reddit this month with a recommendation that investors sell the shares, in part due to the company’s heavy reliance on google. Reddit shares fell more than 5% in intraday trading Friday.
“It’s been super overvalued,” Bob Lang, founder and chief options analyst at Explosive Options said of Reddit. “Their growth rate is very strong, but they still are not making any money.”
Reddit had a GAAP earnings per share loss of $3.33 in 2024, but reported two consecutive quarters of positive GAAP EPS in the second half of the year.
To some degree, Reddit’s problems are the same ones facing all the tech companies that tend to rise more than the broader market but also fall faster during moments of turmoil. The Nasdaq 100 is in correction territory, down more than 10% from a recent peak, and the biggest technology stocks are slumping as investors are finding few reasons to snap up risk assets at a discount. Even two back-to-back positive days for the Nasdaq 100 earlier this week weren’t enough to meaningfully boost confidence.
“These relief rallies are not an indication that things are great. They’re an indication that a lot of people don’t know what’s coming,” Francisco Bido, senior vice president and portfolio manager at F/M Investments, said of the broader market’s movements. “Unless I see this thing reverse in a really healthy investment environment, and a lot of clarity when it comes to the tariff situation and all that, then I’m not buying it yet.”
At its February peak, Reddit’s stock had risen over 500% from the $34 initial public offering price last March. Some of the enthusiasm was due to a series of deals in which Reddit was paid to allow its content to be used for training artificial intelligence models. More recently, though, there have been questions about the long-term growth prospects for the artificial intelligence industry.