① As soon as spring for meme stocks arrived, Reddit was hit by bears; ② On Wednesday, Reddit interrupted its continuous upward trend, and the stock price plummeted 11%. Analysts pointed out that some traders are very pessimistic about the future of the stock.
Behind every meme stock, there is a bloody and long war, and the latest “US version of the Tieba” Reddit is no exception.
After going public last Thursday,$Reddit (RDDT.US)$The stock price has been rising steadily, but this Vigor suddenly stopped on Wednesday. As of Tuesday, Reddit's stock price had accumulated a cumulative increase of more than 90%, closing at a high of $65.11. However, on Wednesday, the stock fell 11%, the lowest closing price since last Friday.
However, this sharp decline seems to be inextricably linked to a research institution's bearish report. According to a report published by Hedgeye, Reddit's stock price has been seriously overvalued, and its transaction price should be closer to its IPO price of $34, which means that the stock price needs to drop more than 40% from Wednesday's closing price.
Analytical firm Ortex initially estimates that about 2.15 million Reddit shares are currently being loaned, which means that at least 7.1% of Reddit's freely tradable shares have been shorted. Considering that the stock was listed for less than a week, this level of short selling indicates that some investors are very pessimistic about the stock's prospects.
Meanwhile, on Monday, Nasdaq listed Reddit options trading. Contrary to the excitement of the bulls in the previous two days, Reddit options trading on Wednesday showed signs that bears had the upper hand.
According to Trade Alert data, the stock's futures trading volume is expected to be 82,000 contracts on Wednesday, down from 131,000 on Tuesday, and market sentiment tends to be bearish. This shows that the initial frenzy after Reddit went public has cooled down.
Fundamentals that are not favored
Hedgeye analyst Andrew Freedman pointed out that it had decided to short Reddit before its stock was issued, but initially it was not shorted because it was too volatile.
He is awaiting Reddit's first quarter 2024 results report to be released at the end of May, and hopes to see Reddit's fundamental momentum from this first report after listing, but he anticipates that the report may indicate some signs of weakness.
He further stressed that focusing more on Reddit's development in the second half of 2024 and the first half of 2025, Reddit's user and revenue growth may slow rapidly, causing the stock price to drop further.
Despite this, the Reddit launch was viewed as a success. It is the fourth largest IPO in the US stock market this year, which is certainly a very favorable sign for the laid-back IPO market in recent years.
Editor/jayden