Why Reddit stock is crashing today

The share price of American social media platform Reddit (NYSE: RDDT) continued its bearish momentum on Wednesday amid concerns over the use of the platform’s content in ChatGPT responses.

Specifically, RDDT shares fell 8.25% to $209, extending losses from the previous session. However, year-to-date, Reddit stock remains up nearly 30%.

RDDT one-week stock price chart. Source: Finbold

The decline comes after data from AI tracker Promptwatch showed Reddit content appeared in just 2% of ChatGPT answers on Tuesday, down from 9.7% in August and more than 14% at its peak in September. 

Despite the drop, Reddit remained the most-cited social media platform within ChatGPT, averaging 4.3% of responses last month, ahead of LinkedIn at 0.4%.

ChatGPT sources cited in responses. Source: Prompt Watch

Notably, Reddit has positioned itself as a key content source for artificial intelligence companies, striking billion-dollar licensing deals with OpenAI and Google to allow use of its posts in AI training. Reports in mid-September that the company was exploring dynamic pricing for future licensing agreements initially boosted its stock.

However, the recent data showing a sharp decline has raised concerns about the long-term value of its AI partnerships. Investors are also cautious about fluctuations in the platform’s web traffic, which remains vulnerable to changes in Google’s search algorithms. 

Wall Street analysts update Reddit stock price 

On Wall Street, Reddit currently holds a ‘Moderate Buy’ consensus rating from 25 analysts on TipRanks. Of these, 18 recommend buying the stock while 7 suggest holding, with no sell ratings. 

The average 12-month price target is $239, implying a 13.6% upside from Reddit’s current value. Forecasts range from a high of $303 to a low of $165.

Reddit’s 12-month stock price prediction. Source: TipRanks

Among them, RBC Capital on October 1 reiterated its Sector Perform rating on Reddit with a $245 price target, signaling a potential 15% upside.

Despite the relatively positive outlook, RBC analysts flagged declining daily active users (DAUs) over the past 30 days and a steep drop in Reddit’s content citations in ChatGPT as potential risks. 

They noted that changes to Google’s indexing parameters, which affect Reddit’s search visibility, may be contributing to the decline, raising concerns about its traffic trends and its strategic role in AI-driven content aggregation.

Featured image via Shutterstock

Source: https://finbold.com/why-reddit-stock-is-crashing-today/