Reddit downgraded as ’recent user disruptions likely more permanent’

Investing.com -- Wells Fargo downgraded Reddit (NYSE:RDDT) to Equal Weight from Overweight on Monday, warning that recent disruptions to user behavior may become lasting and undermine growth expectations. 

The firm cut its price target for the stock to $115 from $168, citing risks tied to Google’s rollout of AI-powered search tools.

“Recent user disruptions [are] likely more permanent, as search user behavior change accelerates,” Wells Fargo (NYSE:WFC) analysts wrote. “Google [is] likely to integrate full AI search capabilities soon.”

The firm expects Reddit’s logged-out user base, which comprises 55% of total users but contributes just 15% of ad revenue, to decline further as AI tools displace traditional search behavior. 

“View logged-out users (55% of total) as critical to extending scale of ad reach and sustaining LT growth of logged-in users,” Wells Fargo said, calling the segment a key driver of future monetization.

As a result, the bank slashed its three-year daily active user compound annual growth rate for logged-in users to 10% from 13%. It also forecasts 2026 and 2027 ad revenues to come in 6% and 14% below consensus, respectively.

“Expect stock multiple to remain under pressure from user disruption, followed by lagged financial impact,” the analysts warned.

Wells Fargo also raised concerns over Reddit’s high-margin data licensing business, estimating it to be worth $150 million but ultimately incompatible with the platform’s long-term growth goals. 

“[We] see [the] data licensing business as incompatible with maximizing value of the RDDT community,” the note said, pointing to growing risks from AI-powered tools that extract Reddit data to deliver direct answers.

Wells Fargo believes Reddit would need a three-year revenue CAGR of 25% to justify a 15% annual return, but calls that outcome “unrealistic,” given comparisons with Meta’s monetization levels.