Reddit stock dropped 25% in 2 days because the short-sellers have arrived

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Reddit mascot Snoo is seen on the floor of the New York Stock Exchange (NYSE) as Reddit begins trading in New York on March 21, 2024. Photo: Timothy A. Clary (Getty Images)

Snoo may not be smiling anymore. Reddit stock continued to drop significantly on Thursday as short-sellers made moves on the newly-public company. It closed down more than 14% on the day, capping a two-day fall of almost 25% that saw the stock end a shortened trading week at about $49 per share. That's just below the $50 price where Reddit stock closed on its first day of trading, though still significantly higher than its $34 IPO price.

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Some 7% of Reddit's free share float (or more) has been sold short so far, according to an estimate from the analytics company Ortex cited by Reuters. That's something the social platform was worried would happen, noting in its prospectus that retail traders in its subreddits (and particularly on r/WallStreetBets) could cause "extreme volatility" in Reddit's share price. Those Redditors had already signaled in posts that they were planning to short the stock.

Public data revealing short interest positions on Reddit won't be available until April 9.

Bloomberg reports that Wednesday's decline was in part due to a Hedgeye Risk Management report naming Reddit as a short idea, saying the stock could plummet 50%.

Reddit's conservative counterpart Rumble is falling, too

Rumble, another big social media site — albeit with a more politically conservative user base than Reddit and a smaller market cap — also saw its shares fall considerably Thursday. Rumble stock closed down almost 5% to $8 after a big rally on Tuesday. The initial pump-up came after its CEO made comments on Fox News about Rumble's business relationship with Trump Media & Technology Group, which owns Truth Social.

Rumble is still up more than 86% year-to-date after big losses at the end of 2023. But like Reddit, its gains early this week got erased.