Analysts from Redburn Atlantic have sparked concerns over Reddit Inc.'s stock performance, initiating coverage with a sell recommendation on March 17, 2025. James Cordwell and Joseph Barker, the analysts who have become the stock's biggest bear, express worries about the social media company's reliance on Google for user growth.
According to their evaluation, Reddit's impressive user growth is primarily influenced by Google's search capabilities, which they believe could pose significant risks to the social media platform's sustainability. "While the financial performance since its initial public offering has been stellar," said Cordwell, indicating strong revenue results. Yet, they argue, "Wall Street is not appreciating the vulnerability of its growth to Google Search."
Since its IPO debut on March 21, 2024, Reddit's stock has surged by 171%, enticing investors with its promise. This notable increase, driven by user engagement, has created what Cordwell and Barker describe as excessive bullishness on the company's prospects. Yet this fleeting growth has raised red flags. They assert, “the honeymoon may now be over” as Reddit appears poised for potential stagnation.
Analysts forecast stalling user growth starting from 2025, as factors beyond Reddit's control may influence its future performance. The concern is primarily centered around Google’s algorithm, which could shift unfavorably, restricting access to potential users searching for content related to Reddit. This unpredictability poses a challenge for Reddit’s business strategy.
Further compounding their skepticism are indications of Wall Street's overestimation of the company's resilience against external factors like changes to Google’s search engine algorithm. The analysts highlighted the susceptibility of Reddit’s model; it operates as both a platform for user engagement and as dependent, indirectly, on Google's search capabilities for traffic and visibility.
Reflecting on the significant gains since the IPO, analysts at Redburn Atlantic expressed their view on Reddit’s path forward, emphasizing the need for strategic adjustments. Their insights resonate with investors who are beginning to question the sustainability of the leap the stock has taken, driven mostly by investor enthusiasm rather than underlying business strength.
Redburn Atlantic's recommendations reflect wider trends within the industry as investors and analysts increasingly monitor how algorithmic shifts may impact social media platforms reliant on search engines for traffic and user engagement. The balance of power between social media companies like Reddit and tech giants like Google is coming under closer scrutiny.
Overall, the analysts' concerns illuminate potential issues for investors considering Reddit's future. The current bullish sentiment juxtaposed with analyst warnings of inherent risks offers important insights for current and prospective shareholders. Inclusion of these broader market trends is likely to influence opinions on Reddit moving forward, especially as the pressures of maintaining user engagement against algorithmic volatility come to the forefront.
The monitoring of Reddit’s stock and its dependence on Google demonstrates the complex interplay inherent in tech ecosystems today, where the fates of companies can hinge dramatically on the decisions of other, more powerful entities like search engine giants.
