Since reporting its fourth-quarter earnings in mid-February, Reddit Inc. (NYSE: RDDT) stock has dropped 36% in less than a month.
Despite beating expectations on both earnings per share (EPS) and revenue, the stock fell more than 15% on February 12 after the company reported weaker-than-expected daily active unique visitors, missing analyst estimates.
The disappointing user growth was largely attributed to a change in Google’s search algorithm, which temporarily affected Reddit’s visibility in search results. Although the company stated it has since recovered, the initial impact spooked investors, contributing to the stock’s sharp decline.
Picks for you
Broader market turbulence adds to the RDDT sell-off
Adding to the pressure, broader market volatility has intensified Reddit’s decline, with tech stocks experiencing a sharp downturn.
The Nasdaq Composite plunged 4% on March 10, marking its worst single-day drop since 2022, as the so-called ‘Magnificent Seven’ stocks led the pullback. Investor sentiment has been weighed down by mounting recession fears and trade uncertainties, pushing the market into a risk-off mode and compounding Reddit’s sharp decline.
At press time, Reddit stock is trading at $121, still down 25% year-to-date, despite an impressive 159% surge over the past year. However, on March 11, shares staged a strong rebound, climbing from $111 to an intraday high of $123, gaining 10% in a single session.
The rally came after an analyst reaffirmed a bullish outlook, labeling the stock ‘extremely attractive’ following its sharp decline.
Why analysts still see Reddit stock as ‘extremely attractive’
Despite the steep decline, Loop Capital remains bullish on Reddit, maintaining a ‘Buy’ rating and a $210 price target, which represents a 73% upside from current levels.
Analyst Alan Gould views the sell-off as excessive, stating that Reddit ‘has the biggest upside potential’ in its coverage universe, pointing to strong fundamentals backed by 71% year-over-year revenue growth in Q4, the fastest since 2022.
Moreover, analysts see Reddit’s advertising expansion as a key driver of future growth, with higher average revenue per user (ARPU) expected to be fueled by enhanced ad tools and broader ad placements.
According to Loop Capital, Reddit is working toward a product similar to Meta’s (NASDAQ: META) Advantage+, while also increasing ad loads on comment sections and exploring search-based advertising.
Auction-based pricing is also expected to attract more advertisers, further boosting monetization. In that regard, Loop Capital projects 36% revenue growth and an 87% EBITDA increase this year.
With analysts maintaining a bullish outlook and the stock trading well below its recent highs, Reddit remains an ‘extremely attractive’ pick for investors betting on its continued growth and market dominance.
Featured image via Shutterstock
