Reddit Shares Drop 3% Following Loop Capital Downgrade on Valuation Concerns

Reddit (NYSE:RDDT) shares fell more than 3% on Tuesday after Loop Capital downgraded the stock from Buy to Hold, citing valuation concerns. The firm kept its price target at $75.

Loop Capital analysts pointed out that Reddit shares are currently trading at 10 times their 2025 estimated revenue, nearing the $75 target. They noted that even with potential upside to the 2024 and 2025 estimates, the stock's high valuation compared to peers remains a risk.

Since its IPO in March, Reddit's stock has more than doubled, resulting in a significant premium revenue multiple relative to similar companies.

Despite identifying potential drivers for incremental earnings, such as user growth, better monetization strategies, opening the user economy, and increased data licensing, Loop Capital expressed caution. They stated that even if 2025 revenue exceeds their projections by 10%, which is already above consensus, a 10X revenue multiple would suggest an $81 price target. This marginal upside does not justify maintaining the Buy rating.

The analysts also mentioned Reddit's expansion of advertising to conversation pages, which is the platform's fastest-growing ad space, aiming to leverage the contextually relevant area where 40% of comments and conversations are about products or services.