On Thursday, Bernstein SocGen Group initiated coverage on Reddit (NYSE:RDDT) with an Underperform rating and a price target of $40.00. The new coverage reflects concerns about the social platform's future growth and monetization potential.
The firm pointed out the challenges faced by smaller social media companies, especially in terms of advertising targeting and measurement. They noted that if platforms like Pinterest (NYSE:PINS) and Snapchat, which have higher user engagement and better advertising tools, are struggling to meet their potential, Reddit may face even greater difficulties.
Reddit's unique user base, which is largely anonymous and engages with not-safe-for-work (NSFW) content, was highlighted as a factor that could limit the platform's appeal to advertisers. The analyst stated this could hinder Reddit's ability to grow engagement and revenue without compromising other aspects of the business.
Bernstein also expressed skepticism about Reddit's ability to achieve profitability and scale, describing these goals as "tantalizingly just out of reach." The firm underscored the trade-offs that are often necessary between growing user engagement and driving revenue growth.
InvestingPro Insights
As Reddit (NYSE:RDDT) navigates the competitive social media landscape, highlighted by Bernstein's coverage, it's important to consider key financial metrics and insights. According to InvestingPro data, Reddit holds a market capitalization of $7.63 billion, with a notable revenue growth of 20.6% over the last twelve months as of Q4 2023. This growth is indicative of the company's ability to increase its earnings despite the competitive market.
InvestingPro Tips suggest that Reddit's strengths include impressive gross profit margins of 86.19%, as well as a strong liquidity position, with liquid assets surpassing short-term obligations. Additionally, while the platform does not currently pay a dividend, analysts predict that the company will turn profitable this year, which could be a pivotal moment for investors considering the platform's high revenue valuation multiple.
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