Reddit Stock Plunges 26% From Highs, Yet Call Options Have Surged 575%: Is A Rebound Brewing?

Core Viewpoint - Reddit Inc's stock has experienced a significant decline of 26% since reaching a 52-week high of $230.41 on February 10, primarily due to a user growth miss post-earnings and a substantial share sale by CEO Steve Huffman [1] Group 1: Earnings Performance - The fourth quarter earnings report showed a 71% year-over-year revenue increase and earnings per share (EPS) that exceeded estimates, but daily active users decreased due to changes in Google's search algorithm [1] - CEO Huffman indicated that traffic has already rebounded in the first quarter, suggesting that the worst may be over [2] Group 2: Investor Behavior - While retail investors have been selling, hedge funds are accumulating Reddit stock, with 478 funds now holding shares, a 69% increase from the previous quarter [3] - Hedge funds have significantly increased their call options by over 575% in the fourth quarter of 2024, indicating bullish sentiment despite the stock's decline [4] Group 3: Technical Analysis - Technically, Reddit's stock is underperforming, trading below its eight-, 20-, and 50-day simple moving averages, with a bearish relative strength index (RSI) of 31.51 and a negative MACD of -3.94 [5] - However, the 200-day moving average at$ 103.75 suggests that long-term support remains intact [5] Group 4: Future Outlook - Future growth prospects for Reddit include international expansion, advancements in adtech, and profitable AI data licensing deals, such as its partnership with OpenAI [6] - First-quarter revenue is projected to grow nearly 50%, with adjusted EBITDA expected to increase by 700%-800%, indicating a compelling growth narrative [6] - The current stock dip may represent a reset rather than a significant concern, potentially providing an opportunity for investors willing to accept volatility [6]