3 days ago
RBC on Reddit: Sees early stages of a shift to the 'World Wide Website'
-- RBC Capital Markets initiated coverage of Reddit with a Sector Perform rating and a $125 price target, citing both upside potential and risks as the platform navigates a transforming internet landscape.
Analysts describe the shift as 'the very early stages of a shift from the World Wide Web to what we're calling the World Wide Website.'
This transition, according to RBC, reflects a consolidation of internet user engagement around a few large-scale generative AI (GenAI) tools.
'RDDT and others in our space may have mixed exposure,' the analysts wrote, referencing industry commentary from the prior week.
On the positive side, RBC believes Reddit 'is poised to grow revenue significantly through a classic earlier-stage monetization recipe of user engagement growth, increased ad load, surface expansion and ad tech improvements.'
The firm cited channel checks and ad load analysis as support for its revenue growth thesis.
However, RBC raised concerns about Reddit's dependency on external traffic sources. 'The question is whether investors will reward that outsized growth with a higher multiple – or will RDDT's heavy reliance on potentially unstable sources of traffic warrant further multiple compression,' the note said.
At current levels, RBC sees balanced risk and reward, stating: 'Risk/reward feels more balanced at 23x/16x EV/'26E/'27E EBITDA on the combination of high growth/likely NT upside to numbers offset by secular traffic risks.'
The firm emphasized that the key swing factor for Reddit's valuation will be logged-in U.S. user growth, calling it 'both the biggest risk & upside driver.'
Related articles
RBC on Reddit: Sees early stages of a shift to the 'World Wide Website'
JP Morgan upgrades Pinterest on engagement gains, attractive valuation
Desjardins downgrades Canadian energy stocks on bearish oil outlook
