Key Takeaways
Shares of Reddit (RDDT) slipped Monday as Wells Fargo downgraded the stock amid concerns that Google’s implementation of AI search features could hurt the social media company.
Wells Fargo cut its price target to $115 from $168 and downgraded the stock to “equal weight” from “overweight.” Reddit shares fell close to 5% Monday to about $108, giving Wells Fargo’s target roughly 6% upside. The stock is down about a third for 2025.
The prevalence of AI search tools from Alphabet’s (GOOGL) Google has created “user disruptions [that are] likely more permanent,” Wells Fargo said. Traffic to Reddit from Google Search from logged-out users in the U.S. is likely to decline, the analysts added, which ultimately hurts advertising revenue.
“We do expect some bumps along the way from Google,” Reddit CEO Steve Huffman acknowledged earlier this month on the company’s quarterly earnings call, according to a transcript made available by AlphaSense. “Given that the search ecosystem is under heavy construction, the near-term could be more bumpy than usual,” he added.
Still, 10 of the 15 analysts tracked by Visible Alpha have a “buy” rating on Reddit’s stock. The consensus price target is over $150, well above Well Fargo’s revision. After the company’s first-quarter results, Citi analysts said they “believe there are several potential catalysts for Reddit to deliver continued user and revenue growth,” including the wider rollout of new features like the AI-powered Reddit Answers.