It may be the “front page of the internet” but Roth analyst Rohit Kulkarni says investors should not be looking at Reddit (Reddit Stock Quote, Chart, News, Analysts, Financials NYSE:RDDT) right now.
In a research update to clients January 22, the analyst said RDDT, a stock that has been on a tear of late, was now fully valued.
“We are downgrading our rating on RDDT shares to Neutral from Buy as we believe the near-term risk/reward is fairly balanced at current levels,” he wrote. “We are raising our estimates and our PT goes to $195 based on 20x ’25E Revs and implies 46x ’26E EBITDA. Since going public in Mar ’24 at $34 IPO price, Reddit shares have gone up ~450% (vs. S&P 500 +15%) driven by a ~40% uptick in estimates and +310% in EV/Rev multiple.”
In the research update, Kulkarni, as mentioned raised his price target significantly -from $116.00 to $195.00, but downgraded Reddit from “Buy” to “Neutral”.
The analyst thinks the company will post EBITDA of $292.2-million on revenue of $1.29-billion in fiscal 2024. He expects those numbers will improve to EBITDA of $549.0-million on revenue of $1.88-billion in fiscal 2025.
Aside from the valuation, the analyst addressed the reasons behind the downgrade.
“#1. 2025 fundamental optics mixed at best: Reddit revenues accelerated from 21% YoY in 2023 to >60% in 2024E while growing EBITDA margins from -9% in 2023 to >20% in 2024E. Over the next 12 months, we expect revenue growth to decelerate every quarter with somewhat deteriorating incremental EBITDA margins; #2. User growth comps are tough in 1H25: Reddit added record number of QoQ users in 2024, partially driven by a perfect combo of benign Google (GOOGL-Buy) algo changes and favorable user funnel changes. We are afraid that replicating 2024 conditions might require more than a prayer; and #3. Incremental margins could come under pressure: We believe RDDT mgmt. would reinvest revenue upside into growth opportunities as 2025 progresses, effectively lowering incremental margin profile this year,” Kulkarni concluded.
About The Author /
Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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