Reddit stock slid more than 10% on Wednesday, diving below its 50-day moving average, on questions about its ability to garner site traffic from the popular ChatGPT.
RBC Capital analyst Brad Erickson said in a Wednesday client note that "data showing declining DAU's (daily active users) on a (trailing 30-day average) is making the rounds on social media this morning and weighing on the stock, along with other third-parties flagging that Reddit's citation share on ChatGPT has gone down significantly recently."
A Tuesday report by research firm PromptWatch found Reddit has been cited less frequently by ChatGPT in recent weeks, though it remains a leading source for the generative-AI-powered bot.
The report adds to a long-running debate about Reddit stock, which has soared more than 500% from its IPO price in March 2024. A fast-growing advertising business and strong user growth have powered that surge. But Reddit's rally has been cool on multiple occasions this year by concerns that it is too reliant on referrals from Google for site traffic. That could leave it vulnerable to swings in user growth, particularly as AI-powered chatbots such as ChatGPT and Google's Gemini directly answer a greater share of people's online queries.
"The debate on RDDT remains whether its under-monetized platform can overcome the possible secular bear case of losing direct user engagement to large language models," Erickson wrote in a separate client note last week.
Erickson added that "conflicting data points" on how often AI chatbots such as ChatGPT are sending users to Reddit are keeping him neutral on the stock overall.
Reddit Stock's Slide
Reddit stock is down more than 9% at 209.10 on the stock market today. That pushed shares below Reddit's 50-day moving average for the first time since late May.
That adds to a recent slide for the stock. Shares have pulled back by more than 35% since reaching an intraday record high of 282.95 on Sept. 18.
Meanwhile, Reddit's Relative Strength Rating remains a strong 97 out of a best-possible 99, showing its outperformance over the past 12 months. Reddit stock has an IBD Composite Rating of 94, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 to 99.
