What Happened?

Shares of online community and discussion platform Reddit (NYSE:RDDT) fell 8.9% in the afternoon session after Bloomberg reported that shareholder Advance Magazine Publishers (the parent company of Conde Nast, which owns brands like GQ and Vanity Fair) is planning to sell up to 7.8 million of its Redditt shares at a discounted price. The sale is expected to fetch Advance Magazine Publishers roughly $ 1.2 billion, which translates to a high single-digit discount relative to the stock's closing price on November 21, 2024 (a day before news of the sale was reported). Separately, the company plans to buy derivatives to offset the sale and enable it to maintain its stake in Redditt as part of a credit facility. The stock's reaction suggests markets expect the sale to depress Redditt's share price at least in the short term. 

Separately, China's Tencent Holdings also disclosed in a regulatory filing that it sold a portion of its Reddit shares. The recent sale reduced Tencent's ownership in Redditt to 7.7m shares, down from 10.7m earlier in the month.

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What The Market Is Telling Us

Reddit’s shares are extremely volatile and have had 42 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The previous big move we wrote about was 23 days ago when the stock gained 42.4% on the news that the company reported strong third-quarter earnings. Reddit beat revenue and EBITDA, especially despite the slight DAU underperformance. However, platform engagement was still strong, with Logged-out users up 70% year-over-year. Notably, the company reported that "Reddit" was the sixth most Googled word since the start of the year, pointing to the strong potential to convert more internet users to its platform. It also highlights the potential to continue to grow and optimize ad revenue as the company continues to experiment with new ad formats. The company's optimistic EBITDA forecast for the next quarter also blew past analysts' expectations. Overall, this was a great quarter for the company.

Reddit is up 189% since the beginning of the year, and at $145.87 per share, it is trading close to its 52-week high of $158.02 from November 2024. Investors who bought $1,000 worth of Reddit’s shares at the IPO in March 2024 would now be looking at an investment worth $2,889.

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