Reddit Inc. (NYSE: RDDT), blames a change to Google’s search algorithms for its failure to meet Street’s estimates of user growth for its fiscal fourth quarter.
Rohit Kulkarni, Roth MKM analyst, sees that the social network forum faces other challenges.
Kulkarni has maintained his “neutrality” on Reddit’s stock following its earnings release on Thursday.
His $195 price goal does not suggest any meaningful upward movement from current levels.
What could harm Reddit’s stock in 2025?
Reddit’s Management confirmed on the earnings conference call that the company had already seen signs of recovery in Q1.
Roth MKM analyst, however, took a dovish stance on the New York listed firm. Its global daily active uniques grew by a lesser than expected 39% to 101.7 millions in the fourth quarter.
Kulkarni also expects RDDT will aggressively reinvest this year in growth, which could result in a deceleration of its growth and pressure on the margin profile in 2025’s second half.
He expects the firm’s margins to decline by about 50% in the future.
Reddit’s stock does not pay a dividend at this time, so it is not attractive to income investors.
The current value of RDDT is concerning
Rohit Kulkarni advises caution when buying RDDT shares during the post-earnings sale, as they are trading at a significant price premium.
Reddit’s stock is currently trading at about 20 times and 65 time its projected revenue and EBITDA in 2025. This is well above the price of other stocks.
The Roth MKM analyst is “neutral” about the company, based in San Francisco, CA, as its risk/reward ratio looks more balanced at the current valuation.
For RDDT’s stock price to be justified, it would have needed over $440 millions in revenue.
The company reported revenue of $428 million only for its Q4 fiscal.
Reddit’s Q4 financial highlights
Investors should be aware that, while the investment firm is still a bit dovish about Reddit’s stock, its quarterly report excluding user growth was strong.
The forum social network generated revenue of $428 million at 36 cents per share, exceeding the consensus estimates of $405 million and 25 cents.
The company’s management has set a revenue target of between $360 million and 370 million for the current quarter.
Analysts were expecting $358 million. Steve Huffman told investors that in the earnings announcement:
What’s exciting is yet to come. We’re focused to provide a best-in class experience for finding trusted information and community, proving Reddit is for everybody, everywhere.
RDDT earnings came more than a week after the company launched a new AI feature, Reddit Answers.
This post Reddit Stock faces greater risks than Google algorithm changes in 2025, warns analyst may be modified as updates unfold
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