Reddit Stock Pulls Back From A Red-Hot Run. Here’s Why.

Reddit (RDDT) stock slid in Friday trading after a report that Advance Magazine Publishers plans to borrow against its large Reddit stake. The slide is taking a bite out of a big recent run for the social media stock.

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Bloomberg reported late Thursday that Advance — which owns the major magazine publisher Conde Nast — planned to establish a credit facility using as much as $1.2 billion of its stake in Reddit. That includes selling 7.8 million shares priced between $145.38 to $148.54, Bloomberg reported, compared to Reddit’s closing price on Thursday of 158.02. Citing unnamed sources, Bloomberg added that Advance “is buying derivatives on the shares, which will allow it to maintain its ownership stake while enabling it to create the credit facility.”

On the stock market today, Reddit stock is down more than 7% at 146.55 in afternoon trades. Shares surged 16% Thursday and are still ahead nearly 18% this week.

Reddit Stock Up 191% Since IPO

Reddit stock has soared more than 191% since its initial public offering in March. Shares turned red-hot after the company posted a surprise profit with its third-quarter results in late October. Reddit stock is up 25% in November and gained 81% in October.

Advance, through Conde Nast, acquired Reddit in 2006 for $10 million before spinning the startup back out five years later. It remains one of the company’s largest shareholders. Bloomberg’s report added that the details of Advance’s plan have not yet been finalized and could change.

Separately, China tech giant Tencent Holdings (TCEHY) disclosed late Thursday that it sold roughly $400 million in Reddit stock this month. The sales cut Tencent’s stake in Reddit by about 28% to around 7.75 million shares, according to Dow Jones Newswires. Tencent led a $300 million venture funding round for Reddit in 2019 that valued the company at $3 billion.

Reddit broke out from a cup-with-handle base buy point of 69.11 on Oct. 4. The stock then gapped up a massive 42% on Oct. 30, after the company’s third quarter earnings report.

Reddit’s IBD Composite Rating is 95 out of a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.

Reddit stock is also on the premier IBD 50 list, as well as IBD’s IPO Leaders and Tech Leaders lists.

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