On Monday,March 17,2025,shares of Reddit (RDDT) experienced a significant tumble. The stock price plummeted by 12.3% as of 1:25 p.m. ET, hitting lows of 12.4% earlier in the trading day. This downturn coincided with broader market declines, as the S&P 500 fell by 1.2% and the Nasdaq Composite dropped by 1.4%. The social media platform, fresh off its IPO, is now facing increased scrutiny from Wall Street analysts, casting a shadow over its future prospects.

Adding fuel to the fire, a recent report highlighted Reddit’s volatility, noting a beta of 2.61. This means Reddit’s stock is more than two and a half times as volatile as the overall market, making it a possibly risky investment for those with a low-risk tolerance.

reddit’s User Growth: A Sustainable Model or a Fleeting Trend?

Redburn Atlantic analysts James Cordwell and Joseph Barker initiated coverage of Reddit with a “sell” proposal, setting a price target of $75 – the lowest to date. While acknowledging Reddit’s notable user growth, the analysts expressed concerns about its long-term sustainability, suggesting it might be a temporary boon derived from changes to Google’s search algorithm. They characterized the user growth as a “gift” from Alphabet‘s Google.

The core of their argument revolves around the nature of Reddit’s new users. According to the Redburn Atlantic analysis, Google’s algorithm tweaks led to Reddit nearly doubling its user base in the past 18 months. However, a significant portion of this growth comes from users seeking quick answers to specific questions, rather than becoming actively engaged, logged-in members. These logged-in users are ultimately more valuable to Reddit, as they are more likely to contribute to content creation and engage with advertising.

The analysts are skeptical that the current rate of user growth can be maintained. Ther is clear evidence that the boost to traffic and visibility from these changes is hitting a ceiling, they stated, further suggesting that what Google giveth, it will taketh away. This raises a crucial question: can reddit transition these casual users into active,contributing members of the community? The company’s ability to do so will be a key determinant of its long-term success.

These figures highlight the importance of converting casual users into active, engaged members to sustain growth and increase revenue.

The Looming Advertising Challenges

Cordwell and Barker present a compelling case that the user growth figures, while seemingly positive, may be misleading due to the type of users driving the traffic. This issue is further compounded by the nature of Reddit as a social media platform, distinguishing it from visually-driven platforms like Instagram and TikTok.

The effectiveness of advertising on Reddit remains a significant concern.The platform’s primarily text-based format might not be as visually engaging or impactful as the image and video-centric content found on other social media platforms. Consider the impact of a visually compelling ad during the Super Bowl versus a text-based banner ad on a Reddit thread. The difference in engagement is substantial.

Counterarguments and Reddit’s Potential Upsides

While the analysts highlight potential challenges, it’s essential to consider counterarguments. Reddit possesses several unique strengths that could drive future growth and profitability:

• Strong Community Focus: Reddit’s communities, or subreddits, foster a sense of belonging and shared interest, creating a highly engaged user base.
• Unique Content: The platform hosts a diverse range of content, from niche hobbies to in-depth discussions on current events, attracting a wide audience.
• Data Licensing Opportunities: As Reddit continues to grow, its vast collection of user-generated content could be valuable for training AI models and other data-intensive applications.

Moreover, Reddit is actively exploring new revenue streams, such as premium subscriptions and e-commerce partnerships, which could offset potential advertising challenges.

Ultimately, Reddit’s success hinges on its ability to leverage its unique strengths, adapt to evolving market conditions, and effectively monetize its user base. While the recent stock plunge and analyst concerns are valid, they don’t necessarily signal the end for the social media platform. Instead, they highlight the challenges and opportunities that lie ahead as Reddit navigates the complex and ever-changing landscape of the digital world.