Reddit stock tumbles on concerns over declining user engagement

Investing.com -- Reddit (NYSE: RDDT) stock fell 11% Wednesday amid growing concerns about declining daily active users (DAUs) and reduced citation share on ChatGPT, based on negative third-party data.

The social media platform’s shares dropped after SimilarWeb data revealed declining DAUs on a trailing 30-day average. Adding to investor concerns, data from Promptwatch indicated that Reddit’s citation share on OpenAI’s ChatGPT has significantly decreased in recent weeks.

RBC Capital analyst Brad Erickson, who maintains a Sector Perform rating and $245.00 price target on Reddit, noted that a third-party study showed Reddit’s citation share on ChatGPT had plummeted from approximately 29.2% to just 5.3% since September 10th.

The analyst attributed this decline partly to Google changing its indexing parameters from 100 to 10 per page, effectively causing third-party large language models (LLMs) to access only one-tenth of their previous results when indexing Google’s search data.

A key unknown factor remains how much of Reddit’s traffic was actually derived from ChatGPT, which could explain the impact on user metrics. Despite these concerns, Erickson indicated he remains "constructive fundamentally on RDDT on the likely strong ad momentum" but acknowledged limited visibility on conversation forum citation share in the rapidly evolving generative search landscape.

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