Reddit stock has remained under pressure this month, moving from a high of $207 in July to the current $143. It has also plunged by 50% from its highest point last year, with its market capitalization moving from over $51 billion to $27.5 billion today. This retreat may continue as website traffic drops.
Reddit stock drops as headwinds rise
RDDT stock has been struggling this year as concerns about its growth trajectory continue. One major issue is that traffic to its website continues falling, partly because of the challenges in search. SimilarWeb data shows that the number of visitors to the website dropped by 3.22% to 4.18 billion last month.
The company has blamed the slowing traffic to its relationship with Google, which now pays it $60 million a year to use its content to train its models. As a result, the Wall Street Journal recently reported that it was reconsidering the deal because Google’s AI summaries were affecting its business. In the last earnings report, the company’s CEO said:
“Search referrals were choppy in the quarter, and traffic was more volatile later in the quarter, but the bigger picture is unchanged: the commercial business is strong.”
Reddit stock has also retreated because of the recent S&P 500 Index inclusion. Historically, stocks tend to do well after being added in major indices like S&P 500 and Nasdaq 100. This surge is usually brief as the momentum fades. We saw this with companies like Robinhood Markets, CoreWeave, and Nebius.
Additionally, there were concerns about valuation, with its market capitalization peaking at over $54 billion. While the metric has improved, the current forward price-to-earnings ratio of 18 is also higher than the sector median of 13.
These metrics likely explain why analysts have slashed their targets. DA Davidson reduced the target to $185 from the previous $200. Morgan Stanley cut the target from $240 to $210, while JPMorgan reduced from $200 to $185.
Reddit growth is continuing
On the positive side, there are signs that the company’s revenue is continuing to grow, with the number of users soaring. The number of daily active users rose to 130.3 million, up by 18% from a year earlier.
As a result, revenue rose by 61% to $805 million, with its advertising revenue being the biggest part of its business. Most notably, the gross margin rose to 91.3%, while the net income was over $253 million.
Most of Reddit’s revenue came from the United States, with its international segment making over $167 million.
Analysts expect the company to experience double-digit growth. The annual figure is expected to jump by 53% to $3.4 billion, followed by $4.46 billion next year.
Reddit share price technical analysis
RDDT stock chart | Source: TradingView
The daily chart shows that the stock also has some risky technicals. It has formed a head-and-shoulders pattern, which is a common bearish reversal sign in technical analysis. It is now hovering near this pattern’s neckline.
The stock has slumped below the 50-day Exponential Moving Average (EMA) and the Supertrend indicator. Also, the two lines of the MACD indicator have remained below the zero line.
Therefore, the path of the least resistance is bearish, with the initial target being the psychological level of $100. If this happens, it will be a 31% drop from the current level.
The post Reddit stock H&S pattern points to a drop to $100 as headwinds rise appeared first on Invezz