Reddit shares plunge almost 25% in two days, finish the week below first day close

Reddit shares are plunging after a spike following its IPO last week.

Shares finished at $49.32, a week lower than their closing price on Reddit’s first day of trading on the New York Stock Exchange. They closed last Thursday at $50.44. The stock markets are closed on Good Friday.

Reddit shares began their downhill slide on Wednesday, falling around 11% to $57.75 at the market close. Hedgeye Risk Management described Reddit’s shares as “grossly overvalued” in a report quoted by Bloomberg News that day, adding the company was on the firm’s “short bench.”

Reddit’s CEO Steve Huffman sold 500,000 shares, according to a corporate filing released earlier this week. Ben Silverman, Verity’s vice president of research, told CNBC that the move was expected and represented only “a portion of his holdings.”

Meanwhile, Reddit Chief Operating Officer Jennifer Wong revealed that she sold 514,000 shares and currently owns 1.4 million of the company’s stock.

“There’s always a bit of a disconnect, because the purpose of bringing the company public is twofold,” said Silverman. “It’s not only about creating liquidity for the company so that it can expand and prosper. In these instances, insiders frequently cash out to generate liquidity, which CEOs must consider here.

“If the prospects are so bright, why are insiders selling?” Silverman added.

Reddit shares started the week on a positive note, rising 30% on Monday. The company’s shares surged 8.8% on Tuesday, closing at $65.11, despite New Street Research’s neutral recommendation.

The New Street Research analysts wrote in a note that they would not change their $54 price target and that they expect “volatility into the first earnings report.”