Reddit shares have taken a beating lately. The self-proclaimed "front page of the internet" that went public with such fanfare last year has watched its stock price plummet from February's dizzying heights above $200 to a much more sobering $100 today.
It's the kind of fall that makes investors wince. And scratch their heads. And maybe curse a little.
So what happened? And more importantly—is this a buying opportunity or a falling knife?
I've been tracking Reddit's public market journey since day one, and let me tell you, it's been anything but boring.
The company actually posted better-than-expected earnings recently. In normal times, that would've triggered at least a modest rally. Instead? The stock kept sliding downward, largely thanks to Google's algorithm changes wreaking havoc on Reddit's traffic. Nothing quite captures modern business risk like watching your company's value evaporate because someone else tweaked their search rankings.
What I find particularly fascinating (and slightly ironic) is the ownership structure here. About 90% of Reddit's float is held by institutional investors, according to Yahoo Finance data I reviewed yesterday. Think about that for a second—a platform built around regular folks sharing everything from stock tips to sourdough recipes is predominantly owned by BlackRock and friends.
The disconnect is striking. Reddit boasts something like 70 million daily active users. It's the backbone of countless internet communities. Yet as an investment? Strangely overlooked.
Part of the problem is monetization. Unlike Meta or Google, who've turned user data into advertising gold, Reddit has struggled to achieve the same commercial appeal. Their user base is notoriously allergic to overt commercialization. Push too many ads and—trust me—the platform's most dedicated users will revolt faster than you can say "diamond hands."
Look, the Google algorithm situation represents a classic tech vulnerability that investors often underestimate. When your traffic depends heavily on another company's systems, you're essentially running a business inside someone else's walled garden. One tweak and... well, you've seen the stock chart.
Analysts still have price targets hovering around $150, suggesting the stock might be undervalued by about 50%. But then again, these are the same folks who thought WeWork would revolutionize real estate, so there's that.
Having spent time interviewing several Reddit executives before their IPO (back when optimism ran high), I'd say the company has something genuinely valuable—passionate communities that can't be easily replicated. But its path to consistent profitability? That remains murky at best.
At $100, with decent earnings and strong institutional backing, it's certainly more interesting than at $200. But that Google algorithm situation? Can't just wave that away.
If you're already holding bags at $110, averaging down makes some sense... if you believe in the long-term story. Just don't mistake cultural relevance for guaranteed financial returns. Twitter was culturally relevant too, and we all remember how that turned out for public market investors before Musk took it private.
The Reddit saga reminds me of that old Wall Street wisdom about markets remaining irrational longer than you can remain solvent. Though in this case, maybe—just maybe—the market is being perfectly rational while the rest of us are blinded by our daily Reddit scrolling habits.
I'll be watching this one closely. In the meantime, perhaps I should check r/WallStreetBets to see what the real "experts" think.
