A class action lawsuit was filed against Reddit, Inc. (RDDT) by Levi & Korsinsky on June 18, 2025. The plaintiffs (shareholders) alleged that they bought RDDT stock at artificially inflated prices between October 29, 2024, and May 20, 2025 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Reddit stock during that period can click here to learn about joining the lawsuit.
Elevate Your Investing Strategy:
- Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence.
Reddit is a social media platform that allows users to create communities, where users, called redditors, connect and discuss shared interests through links, text posts, images, and videos. Users can also vote on content, with upvotes pushing posts and comments to the top, and downvotes dropping them to the bottom.
Importantly, much of the user traffic to Reddit is diverted from users searching for answers to queries on Alphabet’s (GOOGL) Google Search. Reddit’s claims about the outlook for user rates and advertising revenues are at the heart of the current complaint.
Reddit’s Misleading Claims
According to the lawsuit, Reddit and three of its senior officers (the Defendants) repeatedly made false and misleading public statements throughout the Class Period. In particular, they are accused of omitting truthful information about the ways in which changes in Google Search’s algorithm were impacting the company and ancillary issues, from SEC filings and related materials.
During the Class Period, Reddit’s CEO stated during an analyst call that Google’s algorithm overall had both positive and negative impacts on Reddit’s user traffic. Therefore, the company never celebrated or complained about an algorithm change.
Moreover, on another analyst call held on February 12, 2025, the CEO reassured investors by stating that over the years, Google has had several algorithm updates, and Reddit’s team has done an “excellent job adapting to these latest changes effectively.”
Finally, during the same call, the CEO responded to an analyst’s question by stating that he had his doubts about the changes to Google’s algorithm but was not worried about them. He also clarified that there would be no impact on revenue.
However, subsequent events (detailed below) reveal that the defendants failed to inform investors that the latest algorithm changes were materially different from prior instances of reduced traffic to the Reddit website. The defendants were aware that the increase in the query term “Reddit” on search engines was because users were getting the sought-after answer from Google Search without having to go to Reddit, and not because they intended to visit Reddit. As a result, this zero-click search reality was dramatically reducing traffic to Reddit in a manner the company was unable to overcome in the short term.
Plaintiffs’ Arguments
The plaintiffs maintain that the defendants deceived investors by lying and withholding critical information about the business and prospects during the Class Period. Importantly, the defendants are accused of misleading investors about the true impact of Google’s algorithm changes on user traffic and advertising revenues.
The information became clear in a series of partial disclosures. The final truth emerged on May 21, 2025, when Robert W. Baird analyst Colin Sebastian slashed the price target on RDDT stock from $140 to $120. Following the news, RDDT stock declined 9.3%, the same day.
The analyst cited similar concerns to those expressed by Wells Fargo analysts on May 19, 2025, highlighting “the new developments in Google Search that were just announced at the Google I/O developer conference.” Based on this confirmation of long-term disruptions to Reddit’s traffic, Sebastian “adjusted estimates to account for ongoing headwinds in U.S. user growth.”
To conclude, the defendants failed to inform investors about the expected permanent impact on Reddit’s user traffic from Google’s algorithm changes. Despite these issues, RDDT stock has gained 29.6% so far this year.
