Shares of Reddit Inc. (RDDT) declined sharply on Friday, closing at $141.67, a drop of 5.6%, while major U.S. indexes posted gains. The sell-off came after Meta Platforms (META) officially launched Forum, a standalone discussion application that emerged from Facebook Groups, now available in the App Store.
Forum allows users to log in using Facebook credentials, participate with nicknames, and leverage an AI-powered 'Ask' feature that aggregates answers from multiple groups. The app closely mirrors Reddit's community-driven format, raising concerns among investors about increased competition in the online discussion space.
Despite the negative market reaction, Reddit reported robust first-quarter earnings on May 1. Revenue surged 69% year-over-year to $663 million, with advertising revenue climbing 74% to $625 million. Daily active unique users increased 17% to 126.8 million. Net income reached $204 million, while adjusted EBITDA came in at $266 million. The company guided second-quarter revenue in the range of $715 million to $725 million.
Reddit's management has consistently emphasized the company's unique position in the age of AI. CEO Steve Huffman stated in April that Reddit is 'powered by deeply engaged communities and authentic human conversation,' which gives the company 'a unique advantage in the age of AI.' COO Jen Wong also noted the company is 'still hiring and adding to our talent base.'
However, the launch of Meta's Forum app introduces a new competitive dynamic. With Meta's massive user base and AI capabilities, Forum could potentially attract significant question-and-answer traffic that might otherwise go to Reddit. This could pressure Reddit's user growth, ad pricing, and the perceived value of its data archive.
Market analysts are divided on the long-term implications. While a single app launch does not constitute a definitive shift, it provides a fresh reason for bearish investors to reassess the stock. Reddit shares had rallied over 12% following its upbeat Q1 outlook, but the Forum announcement has introduced new uncertainty.
Looking ahead, U.S. markets will be closed on Monday, May 25, for Memorial Day, with trading resuming on Tuesday. The broader market continues to show strength, with the S&P 500, Dow Jones, and Nasdaq all closing higher for an eighth consecutive week.
