Oppenheimer sets Reddit stock Outperform with $125 target

On Wednesday, Oppenheimer initiated coverage on Reddit (NYSE: RDDT), assigning the social media company an Outperform rating and setting a price target of $125. The analyst cited several reasons for the positive outlook, despite Reddit’s shares having experienced a significant pullback earlier in the year. For deeper insights into social media companies and their valuations, InvestingPro offers comprehensive analysis of over 1,400 US stocks, including detailed Pro Research Reports that transform complex Wall Street data into actionable intelligence.

Reddit’s stock declined by 49% since February 19, a sharper drop compared to the NASDAQ’s 16% fall over the same period. This decline mirrors trends seen in peer companies like Snap, which according to InvestingPro data has experienced a 27% decline over the past six months. Oppenheimer’s analysis suggests that the current market price now reflects the medium-term risks associated with Reddit’s business. These risks include the platform’s dependence on Google, a challenging second-quarter Daily Active Users (DAU) comparison, weaker international user engagement, and potential hurdles in monetization.

However, the analyst believes that Reddit will continue to attract advertiser interest by leveraging its targeted first-party data and the niche communities within its subreddits. This is supported by the company’s 2024 Average Revenue Per User (ARPU) growth of 13% year-over-year, despite DAUs increasing by 43%. This indicates a strong advertiser demand as Reddit has managed to accommodate the surge in ad impressions without a decrease in pricing.

In addition, Oppenheimer sees a mutually beneficial relationship between Reddit and Google, particularly as Google faces challenges competing in consumer AI. A survey of 690 U.S. users indicated that Reddit has improved in both user engagement and ad relevance.

The price target of $125 is based on a valuation that assumes 28 times the company’s estimated 2026 EBITDA. This represents a 63% premium relative to its peers. The target also factors in Reddit’s EBITDA growth, which is projected to outpace its competitors by 168% from 2024 to 2027, even as it trades at a discount to SNAP. For context, InvestingPro data shows SNAP currently trades at an EV/EBITDA of -25x, with a Price/Book ratio of 5.45x, highlighting the complex valuation dynamics in the social media sector. Discover more detailed valuation metrics and peer comparisons with InvestingPro’s comprehensive financial analysis tools.

In other recent news, Snap Inc (NYSE:SNAP). has been the subject of various analyses and adjustments by financial firms. JMP analysts maintained a Market Outperform rating on Snap with a price target of $14.00, noting slight improvements in user engagement despite overall negative growth. Conversely, TD Cowen reduced Snap’s price target to $10.00 due to macroeconomic concerns and a decline in consumer sentiment, while maintaining a Hold rating. This adjustment reflects a more cautious outlook amidst economic headwinds.

Additionally, Guggenheim’s report indicated a modest deceleration in Snap’s global audience reach and app downloads, which contributed to a slight dip in Snap’s stock. Evercore ISI moved Snap to its Tactical Underperform list, suggesting a less favorable view of the stock. The firm also noted that the risk of a recession has increased, impacting the internet sector broadly.

Meanwhile, RBC Capital Markets highlighted concerns about tariff exposure for major companies like Meta (NASDAQ:META), Alphabet (NASDAQ:GOOGL), and Amazon (NASDAQ:AMZN), with Meta being most affected. These recent developments provide insights into the challenges and opportunities facing Snap and other companies in the internet sector.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.