Reddit has become a hub for social-media driven traders and investors that have proven their ability to move the markets, injecting huge volatility into stocks like GameStop and AMC. But what stocks are grabbing attention on Reddit today?
Top Reddit stocks to watch
Below is a list of the top 10 most mentioned US stocks on the WallStreetBets thread on Reddit over the last 24 hours on February 10, 2022, according to data from Quiver Quantitative. Exchange-Traded Funds (ETFs) have been excluded.
- Meta
- Disney
- GameStop
- Peloton
- NVIDIA
- Tesla
- Twilio
- AMC Entertainment
- Advanced Micro Devices
- Apple
Disney shares are trading 7.8% higher before the bell today at $158.65 – its highest level since mid-November - after smashing expectations when it released first quarter earnings yesterday. Revenue rose 34% from last year to $21.8 billion and adjusted EPS soared to $1.06 from just $0.32. That was much better than the $20.9 billion in revenue and EPS of $0.60 forecast by Wall Street. Its theme park division posted its highest level of sales and profits since the pandemic began while its media and entertainment unit also continued to grow faster than expected. Disney+ ended 2021 with 129.8 million subscribers, well ahead of the 125.1 million pencilled in by analysts. That has installed confidence Disney can catch up to the market leader over the next couple of years after Netflix’s growth and outlook disappointed in the quarter. CEO Bob Chapek has said delivering strong subscriber growth for Disney+ is a top priority for the business as it seeks to catch up with Netflix, which boasted over 220 million subscribers at the end of 2021. Ultimately, its current goal is to have 230 million to 260 million Disney+ subscribers by the end of its 2024 financial year. It said it expects its theme parks to operate without Covid restrictions this year and that its confident its subscriber numbers will continue to grow as a slew of new content comes online after being disrupted by the pandemic, although this will push up programming costs by some $800 million to $1 billion. It said growth will accelerate in the second half of 2022 versus the first. JPMorgan cut its target price on Disney this morning to $200 from $220.
Communication platform Twilio is a new entrant overnight after reporting fourth quarter earnings yesterday. Revenue rose 54% from last year to $842.7 million and its adjusted loss per share swelled to $0.20 from $0.04. That was ahead of the $767.8 million in sales and the loss of $0.22 per share forecast by analysts. CEO and co-founder Jeff Lawson said the quarter ‘capped off an amazing year of results’ that saw annual revenue rise over 60% to $2.8 billion. Twilio said it is aiming for $855 to $865 million in revenue and an adjusted loss per share of $0.26 to $0.24 in the first quarter of 2022. The outlook for the topline was ahead of expectations but the loss is set to be much wider than the $0.05 loss expected by Wall Street.
Peloton shares remain volatile after a busy week for the smart exercise equipment manufacturer, with the stock trading down 2% in premarket trade today at $38. CEO John Foley has stepped down to become executive chairman to make way for the former chief financial officer of Spotify, Barry McCarthy, to take over at the helm after an activist investor called for Foley to be sacked and for the company to be put up for sale after seeing almost $40 billion wiped-off its value over the past 13 months. McCarthy told the New York Times yesterday that there is no immediate plan to sell the business, although rumours remain rife that it could attract interest from the likes of Nike, Amazon and others. Markets have largely welcomed the radical shake-up unveiled this week to get the company back on the path of sustainable profitability and positive cashflow. This includes cutting jobs and costs, curtailing development of its new factory in Ohio, a reduction in spending and an overhaul of the board. Peloton’s second quarter earnings released this week saw disappointing subscriber growth and far wider losses than had been expected. A number of brokers raised their target price on Peloton following the shake-up and, on average, they rate the stock as a Buy and have a target of $43.38 – implying there is almost 12% potential upside from the current share price.
Meta shares broke their four-day losing streak to close up over 5% yesterday at $232, still some 28% below where it sat before its disappointing results were released last week revealing user growth has stalled and advertising income is being severely hit by the changes introduced by Apple last year that makes it harder for firms to track users online and target ads, as well as advertisers scaling back marketing due to widespread supply chain woes. The stock is trading marginally lower in premarket trade this morning at $231.80. Citigroup cut its target price to $258 from $330 yesterday.
Apple shares are down 0.3% before the bell today. The company announced yesterday that US merchants will be able to accept Apple Pay and other contactless payments through iPhones later this year with a service named Tap to Pay. There were also media reports citing an unnamed whistleblower that the US SEC is investigating Apple’s use of non-disclosure agreements.
Tesla shares are trading 0.7% lower this morning at $925.67. Regulators revealed Tesla has had to recall another 26,681 cars in the US in order to fix a software error that can cause a problems with the defrosting mechanism in the windscreen. That is the latest setback after almost 54,000 vehicles equipped with its Full Self-Driving software were recalled over concerns that the software may prevent some cars from stopping at intersections, and another 817,143 cars were recalled because of problems with the audible alert system. All three sets of problems are set to be resolved using an over-the-air software update.
NVIDIA shares are trading 0.4% lower in premarket trade today but continue to shrug-off news this week that its mega-takeover of British chip designer ARM has collapsed. The deal had come under severe regulatory scrutiny in the UK and abroad over concerns the deal could severely impact competition in the chip market. NVIDIA said the regulatory hurdles were simply too high to get the deal over the line and it will still cost the US firm around $1.25 billion in costs. ARM is now instead preparing for an IPO before the end of March 2023, but the location of the listing is still unknown. NVIDIA reports results next Wednesday, and expectations are high after AMD reported strong earnings last week. AMD shares are down 0.5% this morning.
AMC shares are down 1.7% before the bell today at $18.61. The cinema chain announced yesterday that it has appointed Ellen Copaken to a newly created position of vice president of its growth strategy, describing it as a ‘critical hire as it prepares to expand its business into the multi-billion dollar retail popcorn industry.’ The firm said last November it would start selling its AMC Theatres Perfectly Popcorn through new avenues this year.
Fellow meme stock favourite GameStop is trading 2.4% lower in premarket trade this morning at $121.30.
The Reddit frenzy
Retail investors realised their potential power in early January 2021 when a loosely-coordinated strategy was formed on Reddit’s WallStreetBets chatroom to buy shares and out-of-money call options on stocks that were being targeted by short-sellers to push the price higher. The idea was to create a short-squeeze.
What is a short-squeeze?
A short-squeeze does what it says on the tin – it tries to squeeze short-sellers out of their positions. Short-sellers, mostly big institutional investors and hedge funds, bet that the price of a stock will fall but, as retail investors pile in and push the share price higher, they are forced to start buying the stock to try to limit their losses. The buying by the big players only fuels the share price higher.
You can read more about short-squeezes and how they can be predicted here.
David vs Goliath
The fact many of the stocks being targeted are fundamentally flawed or failing adds increased risk into an already volatile picture. GameStop is an out-of-favour retailer that sells physical video games during a time when games are mostly being bought online, while others like Blackberry are also laggards from the past.
With this in mind, it is unsurprising they were in the crosshairs of short-sellers that look for failing companies to bet against.
But why are retail investors banding together to buy shares in flawed companies? This disconnect is partly explained by a growing resentment among the smaller players in the market, which disagree with the idea of large institutions profiting from a company’s failure through short-selling practices, creating what has been described as a ‘David vs Goliath’ battle.
It is important to note that not all the most actively-discussed stocks on Reddit are struggling or being targeted by short-sellers. Many of the most mentioned stocks, like Apple, are simply popular among the community.
Reddit stocks and volatility
The stark movements in stocks like GameStop has demonstrated the power and influence that social media-driven investors and traders can have on the market, having injected severe volatility into several stocks. Volatility presents opportunities for traders, and it doesn’t get more volatile than Reddit stocks right now – even during a pandemic.
For example, we saw GameStop - the first heavily-shorted stock to be targeted by social media-driven investors - go from below $19 at the start of 2021 to a new record high of over $347 by January 27, and the share price has remained highly volatile ever since.
