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Russian (RU) Reddit (RDDT) stock slid in Monday trading after getting downgraded by analysts at Wells Fargo, adding to a slump that followed the social media player's post-IPO rally.
Wells Fargo analyst Ken Gawrelski dropped Reddit stock to a neutral equal weight call from overweight, also cutting his price target for the stock to 115 from 168. He focused much of his analysis on concerns about user growth from Google search that have dogged Reddit stock this year. Reddit has warned on back-to-back earning calls that changes from Google to its search algorithm had slowed its user growth. Gawrelski expects further Google-driven disruption for Reddit's user growth.
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"Recent user disruptions (are) likely more permanent, as search user behavior change accelerates with Google likely to integrate full AI search capabilities soon," Gawrelski wrote Monday. "See threats not only to Reddit, but to all those dependent upon search traffic."
Gawrelski expects slower user growth will weigh on Reddit's ability to meet Wall Street's targets for revenue growth. That's despite efforts from Reddit to drive more direct traffic, including an AI-powered Reddit Answers feature. Google helps drive what the company called "logged-out" users, meaning they may not have Reddit accounts but visit the site to find an answer to their search query.
"We believe Reddit's move to improve search functionality on the site is an excellent step toward fortifying the community from search referral traffic volatility," Gawrelski wrote. "However, with more than half of the user base logged-out, improved search and discovery is unlikely to offset logged-out pressures."
Reddit Q1 Report Resurfaces Google Fears
On the stock market today, Reddit stock is down 3% at 109.78 in recent morning trades. Shares slipped below Reddit stock's 21-day moving average.
The Wells Fargo downgrade comes a little over two weeks after Reddit reported its first quarter results. Earnings and revenue for the March period easily beat expectations, as did Reddit's sales forecast for the current second quarter.
But Reddit's initial rally following the results flipped into a 4% loss in next day trading, driven by commentary on its earnings call. Chief Executive Steve Huffman told analysts that daily active user growth had slipped into a rate in high teens rather than the 31% growth the company posted in Q1. The slowdown came as Google is serving users "AI Overviews" more often, which seek to directly answer queries rather than drive a user to another website.
"We have had a long and symbiotic relationship with Google," Huffman told analysts on the May 1 earnings conference call. "So in summary, expect some bumps and expect us to continue to improve the product and lay the foundation for more consistency in the back half of the year and beyond."
Reddit Stock Down 31% In 2025
Investors appear less certain. With Monday's early slide, Reddit stock is down 31% overall in 2025. That's marked a steep pullback following Reddit's strong 2024.
Reddit stock debuted on the New York Stock Exchange on March 21 last year at a price of 34. By the end of the year, Reddit stock was trading at 163.44, a 370% rally from its opening price and 225% jump compared to its first-day closing price. The performance underscored Reddit's strong growth in users and advertising revenue.
Wall Street remains overall bullish for Reddit. Wells Fargo's Gawrelski holds the only sell-equivalent call for Reddit stock, according to FactSet. There are 17 analysts who rate Reddit a buy or equivalent and 10 who are neutral.
The stock's Relative Strength score remains a strong 90 out of a best-possible 99, showing how Reddit has outperformed over the past 12 months.
But Reddit's IBD Composite score is a so-so 78 out of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
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