Reddit Shares Drop 3% Following Loop Capital Downgrade on Valuation Concerns

• Levi & Korsinsky investigates Reddit, Inc. (NYSE:RDDT) for potential federal securities law violations following a significant price target reduction by Baird.
• Advanced AI capabilities from tech giants pose a threat to Reddit's user growth, impacting its stock price.
• Insider activity and market volatility highlighted by the sale of shares by Reddit's Chief Accounting Officer after a notable stock price drop.

Reddit, Inc. (NYSE:RDDT) is under scrutiny by Levi & Korsinsky for potential violations of federal securities laws. This investigation follows a significant event on May 21, 2024, when Baird reduced its price target for Reddit from $140 to $120. Concerns arose over the impact of advanced AI capabilities from tech giants like Alphabet, which could threaten Reddit's user growth and site traffic.

The platform's primary use for obtaining answers to user questions is now being challenged by Google's new AI tool, which offers solutions with fewer clicks. This development led to a notable drop in Reddit's stock price, which fell by over 9%, closing at $95.85 per share on May 21, 2025. Levi & Korsinsky, a prominent securities litigation firm, is known for securing substantial settlements for shareholders.

On May 22, 2025, Reynolds Michelle Marie, Reddit's Chief Accounting Officer, sold 300 shares of Class A Common Stock at $96.71 each. After this transaction, she retains 44,706 shares. This sale occurred shortly after the stock's decline, raising questions about insider activity during a period of market volatility.

Currently, Reddit's stock price is $105.64, reflecting a slight increase of approximately 0.97% or $1.02. The stock has fluctuated between $103.16 and $106.71 today. Over the past year, Reddit's stock has seen a high of $230.41 and a low of $49.13, indicating significant volatility in its market performance.

Reddit's market capitalization is approximately $19.49 billion, with a trading volume of 3,063,466 shares on the NYSE. This reflects the company's substantial presence in the market, despite recent challenges and the ongoing investigation by Levi & Korsinsky.

Wells Fargo downgraded Reddit (NYSE:RDDT) from Overweight to Equal Weight and lowered its price target to $115 from $168, pointing to structural user engagement challenges and a less favorable advertising outlook. The company’s shares fell more than 4% intra-day today.

The bank flagged growing concerns that recent disruptions in user activity—particularly among logged-out users—are likely to be more permanent than previously expected. With Google accelerating AI integration in search, Reddit could see a meaningful decline in logged-out traffic, which currently accounts for 55% of its user base.

Although logged-out users contribute just 15% of ad revenue due to lower engagement and ad load, they serve as a critical funnel for acquiring logged-in users. As a result, Wells Fargo cut its three-year logged-in DAU growth forecast to 10% CAGR from 13%.

The downgrade also reflects concerns about Reddit’s ability to meet long-term advertising expectations, especially when compared to market giants like Meta. The firm now expects Reddit’s ad revenue and EBITDA in 2026 and 2027 to come in 6% and 14% below consensus, respectively.

Additionally, Reddit’s decision to prioritize community health over monetization may limit the upside of high-margin data licensing revenue.

Reddit (NYSE:RDDT) shares surged over 6% in pre-market today after the company posted first-quarter earnings and revenue that far exceeded analyst expectations, boosted by accelerating ad sales and strong user growth. The upbeat results, along with optimistic guidance, signaled early success from Reddit’s recent investments in advertising infrastructure and AI capabilities.

The company reported adjusted earnings of $0.13 per share, easily topping the $0.01 consensus estimate. Revenue came in at $392.4 million, representing a 61% year-over-year surge and beating forecasts of $369.3 million.

Advertising, Reddit’s primary revenue driver, matched overall growth with $358.6 million in sales. Daily active uniques (DAUq)—a key measure of engagement—rose 31% to 108.1 million, reflecting the platform’s growing traction among users seeking community-driven content.

Reddit also swung to profitability, reporting net income of $26.2 million compared to a loss of $575.1 million in the same quarter last year.

Looking ahead, the company expects second-quarter revenue between $410 million and $430 million, comfortably above the $392.9 million Wall Street projection. Adjusted EBITDA is forecasted between $110 million and $130 million, signaling continued confidence in ad monetization momentum.

Reddit (NYSE:RDDT) shares surged over 6% in pre-market today after the company posted first-quarter earnings and revenue that far exceeded analyst expectations, boosted by accelerating ad sales and strong user growth. The upbeat results, along with optimistic guidance, signaled early success from Reddit’s recent investments in advertising infrastructure and AI capabilities.

The company reported adjusted earnings of $0.13 per share, easily topping the $0.01 consensus estimate. Revenue came in at $392.4 million, representing a 61% year-over-year surge and beating forecasts of $369.3 million.

Advertising, Reddit’s primary revenue driver, matched overall growth with $358.6 million in sales. Daily active uniques (DAUq)—a key measure of engagement—rose 31% to 108.1 million, reflecting the platform’s growing traction among users seeking community-driven content.

Reddit also swung to profitability, reporting net income of $26.2 million compared to a loss of $575.1 million in the same quarter last year.

Looking ahead, the company expects second-quarter revenue between $410 million and $430 million, comfortably above the $392.9 million Wall Street projection. Adjusted EBITDA is forecasted between $110 million and $130 million, signaling continued confidence in ad monetization momentum.

Reddit (NYSE:RDDT) received a reaffirmed Buy rating and $220 price target from Needham analysts, even as the stock has fallen around 40% since its February 12 earnings report.

In a recent update, Needham shared a detailed look at shifting investor sentiment throughout Q1 2025, comparing it to previous quarters. The analysts noted a clear evolution in investor concerns and optimism, with little repetition of issues between quarters, signaling a fast-changing perception of the company.

Despite the stock’s sharp decline, Needham increased its profitability forecasts for both 2025 and 2026, based on updated modeling. Reddit's revenue growth outlook remains intact, with the firm continuing to project 30% year-over-year growth in both years—the fastest among the companies Needham tracks.

The note also includes a deep dive into bull vs. bear narratives from past quarters, highlighting how investor debates have shifted over time. While Reddit faces ongoing scrutiny amid its post-IPO performance, Needham sees the stock’s current levels as offering a compelling entry point, given the platform’s strong growth potential and improving financial trajectory.