Investing.com -- Wells Fargo downgraded Reddit 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 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.