Wells Fargo downgraded Reddit (NYSE:RDDT) from Overweight to Equal Weight and lowered its price target to $115 from $168, pointing to structural user engagement challenges and a less favorable advertising outlook. The company’s shares fell more than 4% intra-day today.

The bank flagged growing concerns that recent disruptions in user activity—particularly among logged-out users—are likely to be more permanent than previously expected. With Google accelerating AI integration in search, Reddit could see a meaningful decline in logged-out traffic, which currently accounts for 55% of its user base.

Although logged-out users contribute just 15% of ad revenue due to lower engagement and ad load, they serve as a critical funnel for acquiring logged-in users. As a result, Wells Fargo cut its three-year logged-in DAU growth forecast to 10% CAGR from 13%.

The downgrade also reflects concerns about Reddit’s ability to meet long-term advertising expectations, especially when compared to market giants like Meta. The firm now expects Reddit’s ad revenue and EBITDA in 2026 and 2027 to come in 6% and 14% below consensus, respectively.

Additionally, Reddit’s decision to prioritize community health over monetization may limit the upside of high-margin data licensing revenue.