Shamis & Gentile, P.A. Notifies Investors It Has Filed a Complaint to Recover Losses Suffered by Purchasers of Reddit, Inc. Securities and Sets a Lead Plaintiff Deadline of August 18, 2025

A class action lawsuit, Tamraz, Jr. v. Reddit, Inc., has been filed against Reddit (RDDT) on behalf of investors who purchased securities between October 29, 2024, and May 20, 2025, alleging the company made false and misleading statements regarding the impact of Google Search's AI features on Reddit's user traffic and advertising revenue; the suit claims Reddit failed to disclose that changes to Google's search algorithms were reducing traffic and impacting revenue, leading to stock downgrades from Wells Fargo and Baird in May 2025 and subsequent price declines of 4.2%, 4.6%, and 9.3% respectively.

Analysis

Reddit, Inc. (RDDT) is confronting a significant legal challenge through a class action lawsuit filed on behalf of investors who acquired securities between October 29, 2024, and May 20, 2025. The lawsuit alleges that Reddit disseminated false and misleading statements by failing to disclose the detrimental impact of Google Search's new Artificial Intelligence (AI) capabilities, including features like AI Overview, on its user traffic and, consequently, its advertising revenue. The complaint posits that these AI-driven alterations in Google Search fostered a "zero-click search" environment, where users obtained information directly from Google, thereby substantially diminishing traffic to Reddit—a trend the company was purportedly unable to counteract in the short term, thus undermining the reasonable basis for its user growth and revenue forecasts. The gravity of these allegations was underscored by Reddit's May 1, 2025, earnings release for its first quarter ending March 31, 2025, which revealed three consecutive quarters of decelerating daily active user growth. This announcement triggered a 4.2% fall in RDDT's stock price to $113.83 on May 2, 2025. Investor concerns were further amplified by subsequent analyst downgrades: Wells Fargo revised its price target to $115 from $168 on May 19, 2025, causing a 4.6% stock decline to $107.99, and Baird reduced its target to $120 from $140 on May 21, 2025, leading to a 9.3% stock drop to $95.85. Both analyst firms highlighted Google's AI advancements as a likely persistent disruption to Reddit's user traffic. The prevailing "strongly negative" sentiment, with a score of -0.9 specifically for RDDT, reflects acute market apprehension regarding this fundamental challenge to Reddit's traffic acquisition and advertising-based revenue model.

Key Decisions for Investors

• Investors should closely monitor the progress of the Tamraz, Jr. v. Reddit, Inc. class action lawsuit and any forthcoming disclosures from Reddit regarding the quantifiable impact of Google's AI on user engagement and monetization, as these will be critical for RDDT's valuation.
• It is prudent to re-evaluate investment theses for RDDT, carefully considering the concerns raised by Wells Fargo and Baird about potentially permanent traffic disruptions from Google's evolving AI search functionalities, alongside the material downward revisions in their price targets from $168 and $140 to $115 and $120, respectively.
• Future Reddit earnings reports should be scrutinized for concrete evidence of user growth stabilization, the effectiveness of any strategies deployed to mitigate reduced search referral traffic, and the actual performance of advertising revenues against the backdrop of these AI-driven search changes.
• Acknowledge the heightened risk profile for RDDT stemming from its significant dependence on external search engine traffic for user acquisition, and consider the potential for further negative catalysts if the company's mitigation efforts prove insufficient to counter Google's ongoing AI integration into search.