Reddit's IPO has seen tremendous initial success with a stock surge of over 150% since its opening, yet recent trading reveals a downturn of more than 30% year-to-date. Although the company reported outstanding financial performance and user growth, analysts raise concerns about the sustainability of this growth, particularly its reliance on Google for user referrals. Redburn Atlantic has initiated a bearish outlook with a sell recommendation, pointing to structural challenges in its advertising approach despite previously high valuations compared to other social media platforms.
"While Reddit's financial performance has been stellar since its IPO in March 2024, consensus expectations fail to appreciate the vulnerability of Reddit's growth to Google Search and the structural challenges of Reddit's nascent advertising proposition," Redburn Atlantic analysts James Cordwell and Joseph Barker said in a research note Monday.
Reddit stock debuted on the New York Stock Exchange on March 21 last year at a price of 34. By the end of the year, Reddit stock was trading at 163.44, a 370% rally from its opening price and 225% jump compared to its first-day closing price.
Concerns about tariffs and the broader U.S. economy have some investors turning away from the same tech stocks that rallied last year. But Wall Street is also debating whether Reddit can sustain its rapid user and advertising growth.
The bearish call underscores the debate about Reddit's positioning after a rally that powered Reddit to a higher valuation than larger social media players such as Pinterest and Snapchat parent Snap.
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