The trading floor of the New York Stock Exchange is preparing for the initial public offering of social media platform Reddit in New York on March 21, 2024.

Spencer Platt | Getty Images

Reddit shares fell sharply after experiencing a rally stemming from the social media company’s IPO last week.

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

Shares of Reddit began the downward spiral on Wednesday, when it sank about 11% to $57.75 at the close. Earlier today, Hedgeye Risk Management described Reddit stock as “highly overvalued” in a report cited by Bloomberg News, adding that the company is on the firm’s “short bench.”

Earlier this week, Reddit revealed in a corporate filing that CEO Steve Huffman sold 500,000 shares. Ben Silverman, vice president of research at Verity, told CNBC that the move was expected and represented only “a portion of its holdings.”

Meanwhile, Reddit COO Jennifer Wong revealed that she sold 514,000 shares and now owns 1.4 million of the company’s shares.

“There’s always a bit of a disconnect because the purpose of taking the company public is twofold,” Silverman said. “It’s not just about generating liquidity for the company itself so it can expand and grow. In these situations, this often allows insiders to cash out to generate liquidity, and that’s something investors should consider here.”

“If the outlook is so good, why are insiders selling?” Silverman added.

Reddit stock started the week on a high note, jumping 30% on Monday. The company’s shares then rose 8.8% on Tuesday to close at $65.11, even after New Street Research issued a neutral rating on the company.

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

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