Reddit’s stock dropped about 6% on Friday due to worries that Forum, a new software from Meta, would provide a different way for users to get together and form discussion groups across the social media platforms.
According to Reddit, the stock drop stems from Meta’s new Forum app, which repackages Facebook Groups into a dedicated feed, letting users post under pseudonymous nicknames while admins see real identities, and includes an AI “Ask” tab that pulls answers from discussions across all groups.
This comes after Meta Platforms discreetly released a stand-alone iOS test app called Forum, which investors see as a direct threat to Reddit’s primary online discussion market. Reddit shares fell almost 6% on Friday. Despite consecutive quarters of remarkable 60%+ revenue growth, Reddit’s stock is already down over 40% overall this year due to this market reaction.
Facebook Groups includes Forum, which was first released as a test app on Apple’s iOS platform. It is “an attempt by the company to compete against Reddit as an online forum for public discourse” and “represents a new threat,” according to a note released on Friday by Truist analysts.
Despite a growing online ad business, Reddit’s stock has suddenly dropped by nearly 40% this year. For the seventh consecutive quarter, the business recorded revenue growth above 60% in April. Meta, on the other hand, revealed a 33% increase in revenue during the previous quarter.
The Truist analysts, who advise purchasing the stock, noted, “The risk from this move, if successful, is a gradual erosion of Reddit’s utility for casual users who have less community loyalty to Reddit and simply want answers.” “Non-core Reddit users would be more impacted by this than regular, directly logged-in users.”
A request for comment from Reddit was not immediately answered.
Over ten years ago, Meta, or Facebook as it was then known, developed a distinct Facebook Groups app, but it was discontinued in 2017. Similar to Reddit, the service is still available as a part of Facebook and offers discussion groups covering a wide range of subjects.
Wall Street is concerned because Meta could gradually destroy Reddit’s casual users, those seeking quick answers, by leveraging its 3 billion daily active users. This marks Meta’s second attempt at a standalone groups app. Still, the firms like Truist maintain a “Buy” rating on Reddit, believing its loyal core users will stay put.