Not-So-Happy 1st IPO Anniversary? Reddit’s Beaten-Down Stock Generates Muted Excitement From Retailers, Sell-Side Keeps Faith

Reddit, Inc. (RDDT) celebrates its first anniversary as a public company on Friday but the stock’s fortunes have taken a turn for the worse amid the recent market downturn.

The company's heady valuation is a major deterrent, especially since the economic outlook does not inspire much confidence. Advertising revenue, sensitive to economic conditions, comprised 92% of Reddit’s total revenue in the fourth quarter.

Following the recent pullback, the stock trades at a forward price-earnings (P/E) multiple of nearly 36 times compared to bigger Meta Platform’s (META) 23.1 times, according to Koyfin data.

Social e-commerce company Pinterest (PINS) trades at a far lower multiple of 16.9 times.

The Reddit Rally & Retreat

After a broad consolidation move that followed the March 21, 2024, initial public offering (IPO), the community-based social media company's shares took off in late October. The trigger was a surprise profit reported for the third quarter of the fiscal year 2024. 

The third-quarter print also revealed a 69% year-over-year jump in revenue to $348.4 million. The stock soared nearly 42% in the session that followed the earnings date. The upward momentum was sustained through the end of the year amid market-wide optimism over President Donald Trump’s reelection and Reddit’s artificial intelligence (AI) initiatives.

The San Francisco, California-based company began testing an AI-powered Reddit Answers feature in early December. 

The rally extended until the middle of February when the stock traded up in anticipation of another stellar report from the Alex Ohanian-co-founded company.

However, investors bid down the stock despite the headline beat as slowdown in user growth metrics set off worries. Reddit led from the front as the broader market began to reverse course in mid-February, dragged by Trump tariff concerns.

The stock pulled back from the Feb. 10 all-time high of $230.41 and has lost nearly 53% since then. The year-to-date loss is a more modest 33.46%. 

Chart Courtesy of TradingView<

Reddit IPO Investor Still In Black

The stock would still have netted a gain for an investor in the company’s IPO. Reddit went public by offering 22 million shares at $34 per share, giving it a valuation of $6.5 billion.

A $1,000 invested in Reddit stock at the IPO price would have fetched an investor roughly 29 shares. The same 29 shares are currently worth $3,154, a neat return of 109%.

Even with the recent steep sell-off, the company’s market capitalization has swelled to $19.673 billion. At the peak stock price, the valuation hit as high as $32.7 billion.

Stocktwits Users Divided

The results of an ongoing Stocktwits poll that has so far received responses from nearly 2,000 users have been mixed. About 39% of the respondents braced for further downside from current levels and nearly an equal proportion (36%) expected the stock to reverse course and hit new all-time highs.

Eighteen percent said they anticipate sideways movement until a catalyst emerges, while 7% said they were unsure.

The sentiment score on the platform relayed a ‘bullish’ mood (40/100) among retailers but the retail chatter continued to be brisk at ‘extremely high’ levels.

RDDT  sentiment and message volume March 21, as of 3:09 am ET | Source: Stocktwits

A bearish watcher cautioned that a break below $104 will aggravate the weakness, adding that the scenario is more likely.

Another user said Reddit stock is worth only $10-$20 as it makes less than Snap, Inc. (SNAP).

Sell-side analysts are upbeat. The Koyfin-compiled consensus price target for the stock is $194.15, implying nearly 80% upside potential.

Reddit stock has been lower for four straight days in the run-up to its IPO anniversary.

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