Why Reddit Stock Is Plummeting Today

Source The Motley Fool

Reddit (NYSE: RDDT) stock is sinking in Thursday's trading. The social media company's share price was down 9.4% as of 2:45 p.m. ET amid 0.7% declines for the S&P 500 index and the Nasdaq Composite index.

Growth-dependent tech stocks are seeing big pullbacks today after Walmart issued sales guidance that prompted an uptick in macroeconomic concerns. The company's share price may also be under pressure following recent news about the latest funding round for X, the company formerly known as Twitter.

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Reddit stock falls after Walmart's guidance highlights macroeconomic risk

Walmart published its fourth-quarter earnings results before the market opened this morning and posted sales and earnings for the period that topped Wall Street's forecasts. Unfortunately, the company paired the strong Q4 print with forward revenue guidance that raised concerns about the health of the economy and triggered sell-offs for the broader market.

After recording annual sales growth of 5.6% in its last fiscal year, Walmart expects growth to decelerate to between 3% and 4% this year. While this may not have any immediate implications for Reddit's business, it could be saying something about the overall state of the U.S. consumer economy. In turn, that could translate to weaker ad revenue for the social media company. It could also cause investors to assign lower valuation multiples to Reddit stock.

What does X's latest funding round say about Reddit?

According to recent reports, X is looking to raise capital by selling stakes valuing the company at $44 billion -- the same price that Tesla CEO Elon Musk acquired the business at in 2022. After today's pullback, Reddit has a market capitalization of roughly $31 billion.

Meanwhile, X is broadly believed to have significantly more active users than Reddit. And while Reddit has recently seen some strong sales thanks to licensing its data for the training of artificial intelligence (AI) models, its platform's core business has historically monetized at lower levels per user. That doesn't mean that Reddit stock is necessarily a bad long-term buy, but investors may be looking at the valuation for X and having some concerns.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla and Walmart. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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