Reddit’s Stock Faces Headwinds as Major Stake Sale Looms

Stock Performance Overview: Shares of Reddit Inc RDDT plummeted by 6.2% to $148.11 per share during premarket trading, following a notable 16% rise to $158.02 on Thursday. While technical analyses indicate a bullish trend, the stock is trading at overbought levels.

Market Developments: Advance Magazine Publishers Inc., a significant shareholder of Reddit, has plans to divest up to $1.2 billion worth of its stake in the company. Reports from Bloomberg suggest the sale will consist of 7.8 million shares, priced between $145.38 and $148.54 each.

Advance Magazine Publishers is part of the Newhouse family publishing group, which also owns Conde Nast. The company aims to utilize its Reddit holdings to set up a credit facility and engage in derivative trading, allowing it to maintain an indirect ownership stake, as per Bloomberg’s report.

Compounding these developments, Reddit experienced service outages earlier this week due to an HTTP error, as reported by TechCrunch. Fortunately, the platform successfully resolved the issue shortly thereafter.

Important Context: The recent outage is not the first disruption for the platform. Observing the technical support for RDDT is crucial, especially given current market conditions.

At Thursday’s close of $158.02, the stock price remains above its eight, 20, and 50-day simple moving averages. This indicates a bullish momentum. However, the stock’s distance from its 100-day moving average of $75.59 raises questions about potential selling pressures, particularly as the relative strength index stands at a high 79.18, suggesting overbought conditions.

Despite possible short-term volatility, the report on the stake sale could impact Reddit’s stock price trajectory. Nonetheless, a recent upgrade from Piper Sandler, highlighting strong user growth, suggests long-term attractiveness for RDDT.

Benzinga Pro data indicates that Reddit has a consensus price target of $92.84 based on evaluations from 19 analysts. The highest target is $150 per share from Piper Sandler dated November 19, while the lowest is $54 per share from New Street Research on March 26, 2024.

The average price target of $118.33 from Piper Sandler, Bernstein, and Citigroup suggests a potential downside of 19.28% for Reddit shares.

Next Steps: In a related context, analysts predict Donald Trump’s DOGE initiative will have a minimal impact, as Elon Musk aims to target over $500 billion in federal expenditures.

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