The Guy Who Cost Reddit $2.8 Billion
How a little-known short seller spoiled Reddit’s big debut.
Reddit’s long-awaited coming-out party is over. After more than doubling to a high of $74.90 in the days after its public debut, the stock is now trading at a still-respectable $47 or so. The man who turned down the music is 35-year-old Andrew Freedman, a partner at Stamford, Conn.–based Hedgeye Risk Management, a investment-research firm that sells its data to retail investors as well as institutional clients.
A week ago, Freedman publicized a thorough short-selling case on Reddit, arguing that its engagement and monetization rate didn’t justify its stock’s premium valuation (at around 14 times sales then). That apparently made some exuberant investors sober up: Shares fell 10% the day he made the call, and they have kept falling—$2.8 billion in market value gone. Poof!
Going short on Reddit is a bit of an irony and possibly a dicey situation. After all, Reddit is the platform where meme-stock traders planned the gigantic GameStop short squeeze in 2022, and it’s pretty easy to imagine Redditors rallying again to protect their home base, tightening a vice around any shorts following Freeman’s advice. More fundamentally, Reddit shareholders will face volatility simply because of the limited supply of Reddit shares. Any share-price movement—up or down—will have dramatic effects.
Of course, Freeman knew all this when he made the call. “Look, it’s not my first rodeo. We’ve done these things before,” he said this week between client meetings in Boston. “But I am surprised by how fast the stock went down.”
His firm, Hedgeye, has been around since 2008, but it’s a small shop compared to the short-selling world’s big names (the Chanoses, the Ackmans, the Einhorns). Little outfits like Hedgeye don’t typically get such an outsize impact as Freeman did with his Reddit report. So how’d he managed to do so in this situation? Seemingly it was a combination of two factors: some luck and good timing. Freedman publicized the call right as the stock took off and tapped into existing skepticism about its growth prospects and unprofitable tech companies more generally (as you can see from Reddit’s valuation falling from $10 billion as a private company in 2021 to $7.4 billion today). To Hedgeye’s credit, the company doesn’t have the glaring conflict of interest inherent in most short selling, where short-sellers go out in public to talk down a stock—thereby increasing the value of their own position. Hedgeye doesn’t trade at all.
Freeman is a lot like how you imagine a Redditor: young, male, very online. He started trading in elementary school—“I can still hear the AOL dial-up tone,” he said—selling stocks through the college savings account his parents had opened for him. In his first role at Hedgeye, he covered boring ol’ health tech.
In 2020, he switched over to tech and media. “Then Covid hit and things got crazy,” he said. As the pandemic sparked a loop of panic and mania in those industries, Freeman made a number of thoughtful calls—a short on Pinterest that rode the stock from roughly $70 to the low $20s from 2021 to 2022; another short on Snap, tracing it from over $80 to under $15; and a well-timed long bet on Meta Platforms, which went from $150 to $400. Obviously, no one gets it right all the time. Freedman went long on Warner Bros. Discovery in January 2023 when shares were around $12—they’ve since dropped to around $8.40—and doubled down on a Netflix short in June 2022 just as the stock shot up from under $200 to more than $600.
As for Reddit, Freedman hopes the critics of his short see it as “nothing personal,” he said, so much as a case of “stock prices getting divorced from reality” as anything else. In short selling, “the only time it gets personal is when management is so liberal with the truth, they start to hurt people. Like in the case of AMC. I think Adam Aron is a horrible CEO. People have lost a ton of money.” That sound you hear is investors sharpening a whole other set of pitchforks for him.