Why Reddit Stock Tumbled This Week

Key Points

• A study found that Reddit is being cited far less often by ChatGPT when web search is enabled.

• This could be impacting traffic for the social media company.

• 10 stocks we like better than Reddit ›

A recent study conducted by AI company Promptwatch suggests that Reddit (NYSE: RDDT) is being used less often as a source for ChatGPT queries. This revelation led to a steep decline in Reddit's stock price on Wednesday. By late Thursday morning, Reddit stock was down about 14.9% for the week, according to data provided by S&P Global Market Intelligence.

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A sudden collapse

Data from Promptwatch shows a steep and sudden decline in the percentage of ChatGPT responses that cite Reddit as a source. Prior to Sept. 11, Reddit was cited in more than 14% of responses where web search had been triggered, dwarfing other social networks. That percentage then dropped below 1%, recovering to roughly 2% as of Oct. 1.

One possible reason for this decline is a drop in the average number of citations returned by ChatGPT. Promptwatch's data shows that the number of citations returned abruptly fell from 12 in early September to seven right around the time Reddit's citation percentage plunged. Fewer overall citations would naturally lead to Reddit showing up less often as a source.

It's also possible that OpenAI is deprioritizing Reddit as a source. Reddit contains a wealth of information, and the upvoting system provides some signal as to which posts are trustworthy. However, basing responses on Reddit posts may hurt accuracy.

An unknown hit to traffic

It's unclear how much web traffic Reddit gets from AI chatbots like ChatGPT. Reddit benefits from showing up at the top of search engine results, and AI chatbots have likely become a more important source of traffic over time as usage has exploded. ChatGPT has around 700 million users, although most of those are free users, and not all of them use web search functionality.

Reddit stock has soared over the past few months, and the forward price-to-earnings ratio sits above 50. With that kind of valuation, investors are right to be concerned about Reddit's drop in ChatGPT visibility.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.