Reddit, Inc. (NYSE:RDDT) saw its stock price jump 14.1% to $198.01 during Wednesday's trading session, significantly outperforming other social media stocks and the broader technology sector. The rally comes as short interest in the company has risen sharply, while its advertising business shows accelerating momentum.
Short Interest Climbs
According to data from MarketBeat, short interest in Reddit increased by 22.9% to 16.47 million shares as of June 15, representing approximately 12% of the company's float. This level of short interest suggests bears are betting heavily against the stock, but it also creates the potential for a short squeeze if positive news continues to drive buying pressure.
The stock has gained 23% over the past five trading days, though it remains 14% lower for the year. The upcoming second-quarter revenue report is now a key focus for investors, as the company's financial performance will determine whether the recent rally can be sustained.
Outpacing Peers
Reddit's gains outpaced those of major social media rivals. Meta Platforms (NASDAQ:META) rose 9.9% to $619.05, Snap Inc. (NYSE:SNAP) gained 8.0% to $4.80, and Pinterest (NYSE:PINS) added 5.2% to $22.13. The Communication Services Select Sector SPDR ETF (NYSEARCA:XLC) was up 2.7%, while the Invesco QQQ Trust (NASDAQ:QQQ) fell 1.4%, highlighting Reddit's relative strength.
The broader market was mixed, with the S&P 500 flat and the Nasdaq Composite down 0.2%. Meta's strong performance was attributed to news that it is developing a cloud unit to sell surplus AI computing power, a move that analysts believe could continue to support the stock.
Fundamentals Drive Rally
Unlike a typical short squeeze driven solely by bearish positioning, Reddit's recent gains are backed by solid earnings. First-quarter revenue surged 69% year-over-year to $663 million, with ad revenue up 74% to $625 million. Daily active users rose 17% to 126.8 million, and the company reported net income of $204 million. Management expects second-quarter revenue in the range of $715 million to $725 million.
Chief Operating Officer Jen Wong noted that the active advertiser count increased 75% from a year ago, with performance ads accounting for over 60% of total ad revenue. CEO Steve Huffman emphasized the platform's value in data and AI, describing Reddit as a hub for "deeply engaged communities and authentic human conversation."
Analyst Divergence
Wall Street remains divided on Reddit's valuation. Over the past three months, analysts tracked by Google Finance have issued 12 buy ratings, seven holds, and one sell. The average price target stands at $220.05, just 11.6% above the current reference price of $197.22. Needham's Laura Martin has a target of $300, while Wells Fargo is more cautious at $176.
D.A. Davidson's Wyatt Swanson described Reddit as "incredibly under-monetized relative to peers," a view that aligns with the recent buying interest. However, with the stock trading at roughly 56.6 times trailing earnings, there is limited room for disappointment. For comparison, Meta trades at 22.5 times earnings and Alphabet at 27.5 times.
At its session high of $201.16, Reddit remains about 30% below its 52-week peak of $282.95 but has gained 66% from the year's low of $119.27. Trading volume reached 6.19 million shares, approximately 1.3 times the normal pace.
