Reddit Stock Plunges 11.8% as Traffic Concerns Mount
Shares of Reddit (RDDT) have plummeted by 11.8% on Wednesday, while broader markets gain ground. The stock's high price-to-earnings ratio and reliance on traffic growth for success have investors worried.
Reddit's stock price stands at $202.75, with a market capitalisation of $38 billion. However, the company's growth trajectory is under scrutiny due to recent traffic trends. Reddit's traffic growth is heavily dependent on Google, which drives the lion's share of new visitors to the site. Any changes in Google's algorithms could significantly impact Reddit's growth.
Reddit's partnership with ChatGPT has been a key driver of traffic, but recent data shows a decline in citations. On Tuesday, ChatGPT cited Reddit in only 2% of its answers, down from an average of 9.7% in August. This sustained drop in ChatGPT links could spell trouble for Reddit's bottom line, as the company relies on traffic to drive ad revenue.
With a high price-to-earnings ratio and a significant portion of its growth tied to traffic, Reddit's stock price is vulnerable to changes in traffic growth. As shares fall by 11.8% on Wednesday, investors are keeping a close eye on the company's traffic trends and the potential impact of algorithm changes on its growth prospects.
