Shares of Reddit (RDDT -0.88%) are falling on Wednesday, down 11.8% as of 3:46 p.m. ET. The drop comes as the S&P 500 and the Nasdaq Composite gained 0.3% and 0.4%, respectively.
The social media platform's stock is still falling after data earlier this week showed a sharp decline in how often ChatGPT references Reddit content in its responses.
ChatGPT citations fall off a cliff
According to Promptwatch, an AI search engine data service, ChatGPT cited Reddit in just 2% of its answers on Tuesday, a steep decline from August's average of 9.7%.
Reddit remains the most referenced social media platform by the AI assistant, but the decline is concerning. Reddit relies on ChatGPT to drive traffic to its site, which in turn drives ad revenue. A sharp drop like this, if sustained, could spell trouble for the company's bottom line.
Image source: Getty Images.
Reddit is at the whim of others
While a drop in ChatGPT links is concerning, it would not be nearly as harmful as a drop in traffic from Google. The search engine is responsible for driving the lion's share of new traffic, something Reddit needs. The company's stock is priced with a lot of growth baked in; it can't afford for its traffic growth to level off.
This is the main reason I would stay away from Reddit stock: It is dangerously reliant on a single source of traffic. A change in Google's algorithm could halt Reddit's growth, and with a price-to-earnings ratio above 100, that's not something that can happen without the stock plummeting.
