Reddit (NYSE:RDDT) shares pulled back more than 13% after Redburn Atlantic analysts initiated coverage on the stock with a ‘Sell’ rating.
The analysts awarded the stock a $75 price target, implying downside of about 41% from Reddit’s previous closing price.
The analysts view Reddit as trading at an unjustified premium compared to its peers, such as Pinterest, which trades at much lower multiples.
They argued Reddit’s growth story is heavily reliant on Google Search, which they view as a temporary tailwind rather than a structural advantage.
They also expect logged-out user growth to slow as Google refines its search algorithm, while logged-in user growth has remained largely unchanged.
Further, they see advertising challenges due to Reddit’s predominately text-based format.
Reddit shares fell 13.3% to about $109 on Tuesday afternoon.