Reddit Stock Slumps as Wall Street Analysts Cut Price Targets After Earnings

Reddit (NYSE:RDDT) extended its steep sell-off, falling to its lowest level since April last year. It ended the week at $91.73, 67.35% below its all-time high, with its market capitalization shrinking from $51.2 billion to $17.6 billion. The slide could continue as analysts begin slashing their price targets.

Top Wall Street Analysts Have Slashed Their Reddit Targets

Reddit stock slumped after the social media giant published its third-quarter earnings, which showed that artificial intelligence (AI) is disrupting its business. In his statement, CEO Steve Huffman pointed to the impact of AI search, which he said has driven a sharp decline in search referral traffic. October traffic fell by more than 1 million referrals per week on average.

Top analysts have started scaling down their targets for Reddit shares, noting that the ongoing challenges will continue in the future. Michael Morris, a Guggenheim analyst, slashed the target from $255 to $170, while maintaining his buy rating. 

Needham’s Laura Martin slashed her target by half, moving it from $300 to $150, while Wells Fargo’s Alec Brondolo cut from $142 to $110. Other analysts who slashed their targets are from companies like Truist and Oppenheimer. The average target among analysts is $197, down from $223 in the same period last year. 

On the positive side, despite the challenges, Reddit’s business continued growing in the third quarter. Its revenue jumped by 53% to $895 million, with its gross margin rising by 50 basis points to 91.5%. The average revenue per user also continued to rise to $6.87.

The management expects that its revenue growth will continue in the coming quarters. Management expects that its revenue will be between $1 billion and $1.03 billion, with the upper side being lower than the expected $1.05 billion. 

Reddit Stock Technical Analysis

On the daily chart, the RDDT stock has been in a steady downward trend in the past few months. It has fallen from a high of $283 in September last year to $91.73. 

The sell-off accelerated after its earnings report this week. It has now slumped below the important support level of $120, its lowest level in March this year. 

The stock formed a head-and-shoulders pattern. It also moved below the 61.8% Fibonacci Retracement level. Therefore, the stock will likely remain under pressure, potentially to the key support level of $80, its lowest point in April last year. 

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