Reddit shares plunge on Hedgeye short report
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The news: Shares in Reddit have tumbled after Hedgeye Risk Management published a report which names the social media stock as a short idea.
The numbers: Hedgeye argues that the stock is “grossly overvalued” and should be trading close to its IPO price of USD34 ($52.11), which would be a 50% slide on its value at Tuesday’s close. Shares in the RDDT stock fell as much as 15% on intraday trading on Wednesday, its lowest level since March 22.
The context: The company’s blockbuster NYSE debut early last week saw its shares surge 48% on its first day of trading, reaching gains of 90% in the following days. Reddit’s highly anticipated listing generated huge levels of investor interest, and the company’s CFO Drew Vollero told Axios that tens of thousands of people participated in Reddit’s direct stock purchase program, which set 8% of shares aside for Reddit moderators and users.
Hedgeye analyst Andrew Freedman explained that the company “put RDDT on the short bench” in the lead up to the IPO, reflecting its belief that the stock “is a fundamental short but that the days immediately following the IPO would likely be volatile and not the proper time to make it an active short.”
“The deal was oversubscribed, the float small, valuation range looked reasonable, and they timed the IPO coincident with easy comparisons where the company is going to post accelerating revenue and user growth the first quarter out of the gate as a public company,” Freedman added.
The source: Bloomberg
