Reddit Stock’s Wild Swings

The Reddit Inc. (NYSE: RDDT) initial public offering was five trading days ago. After going out at $34 a share, it skyrocketed to $57.80, then closed at $50.44. On the fifth day, it dropped to $49.30. Some investors who bought on the first day may have been burned.

Among the reasons the stock dropped is probably that CEO Steve Hoffman sold 500,000 shares, Chief Operating Officer Jennifer Wong sold 514,000 shares, and short sellers hit the stock hard.

Ben Silverman, vice president of research at Verity, told CNBC, “If the prospects are so bright, why are insiders selling?” Trading firm Hedgeye Risk Management said on Reddit’s first day of trading that it expected the stock to move 50% lower. (These 25 famous companies really angered customers.)

One challenge for Reddit investors is that it will release earnings for the first time in late May. In the meantime, it is hard to say how to value the company. It is often compared to Instagram, X, TikTok, and Facebook.

The value of major social media companies can move in opposite directions. Many investors have marked down the value of X, which is privately held. Shares of Facebook’s parent Meta, on the other hand, are up 37% so far this year, while the S&P 500 is 10% higher.

Almost two months is a long time for investors to wait until they see earnings. In the meantime, they can only speculate. That, as much as anything else, will cause continued volatility.