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Reddit's Stock Is Already Collapsing

Boom and Bust

It was only a matter of time.

Reddit shares are cratering right now, plunging almost 25 percent in just two days, as CNBC reports.

The social media company went public last week at an IPO price of $34, and initially rallied to around $65.

This week, however, shares started slipping, following Hedgeye Risk Management releasing a report calling the stock "grossly overvalued," and expecting it to fall around 50 percent, much closer to its original price.

The drop — to about $49 by press time — highlights an expected course correction, in which initial investor enthusiasm was met by a reality check.

Reddit has centered its IPO on AI, an attempt to cash in on the hype surrounding the tech. But in its 20-year history, the company has yet to turn a profit. In 2023, the platform lost a whopping $90.8 million.

Meanwhile, the company's much-loathed CEO Steve Huffman gifted himself an eyebrow-raising $193 million compensation package, which is more than the CEOs of Meta, Pinterest, and Snap combined.

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In other words, Reddit's rocky start on Wall Street shouldn't come as much of a surprise. Without a clear path to profitability, with or without AI, the company isn't exactly likely to suddenly shake off its financially shaky past.

To analysts, Reddit choosing the latter half of March was intentional, potentially foreshadowing weaker quarters to come.

"The deal was oversubscribed, the float small, valuation range looked reasonable, and they timed the IPO coincident with easy comparisons where the company is going to post accelerating revenue and user growth the first quarter out of the gate as a public company," Hedgeye analyst Andrew Freedman wrote in the report.

But the proof is in the pudding. Following this year's first quarter, all eyes will be on Reddit to see whether it can start implementing its plans to attract new users to the platform and drive up revenue.

Was Reddit's initial bump following its IPO a finite burst of enthusiasm? Is this week's tumble a sign of what's still to come?

The public offering was a bit of an outlier, following a two-year-long drought in tech companies going public — and Reddit's future is as uncertain as ever.

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