Reddit Inc (NYSE: RDDT) blames a change in Google’s search algorithm for falling short of Street’s estimates for user growth in its fiscal fourth quarter.
While the company remains confident that its team is capable of navigating such changes, Roth MKM analyst Rohit Kulkarni sees other challenges ahead for the forum social network.
Kulkarni maintained his “neutral” stance on Reddit stock following the company’s earnings release on Thursday.
His $195 price target does not suggest any meaningful upside from current levels.
What could hurt Reddit stock in 2025?
Reddit’s management confirmed on the earnings call that the company was already seeing signs of recovery in Q1.
Still, the Roth MKM analyst took a dovish view on the New York-listed firm as it grew its global daily active uniques (DAUq) by a less-than-expected 39% to 101.7 million in the fourth quarter.
Additionally, Kulkarni expects RDDT to aggressively reinvest in growth this year, which may result in deceleration and pressure on its margin profile in the back half of 2025.
He sees a decline in the firm’s incremental margins to about 50% moving forward.
Note that Reddit stock does not currently pay a dividend to appear any more attractive for income investors either.
RDDT’s current valuation is concerning
Rohit Kulkarni recommends caution in loading up on RDDT shares on the post-earnings sell-off also because they’re trading at a significant premium.
Reddit stock is currently going for about 20 times and 65 times its projected revenue and EBITDA for 2025 – both well ahead of peers.
All in all, the Roth MKM analyst remains “neutral” on the company based out of San Francisco, CA as its risk-reward looks more balanced for the near term at current valuation.
For RDDT to justify its stock price, it should have come in over $440 million in revenue.
The company, however, reported $428 million in revenue only for its fiscal Q4.
Reddit’s Q4 earnings highlights
While the investment firm remains somewhat dovish on Reddit stock, investors should know that its quarterly report, excluding user growth, was sufficiently strong.
The forum social network earned 36 cents a share on $428 million in revenue – handily topping consensus estimates of 25 cents per share and $405 million, respectively.
Even for the current quarter, the company’s management called for revenue to fall in the range of $360 million and $370 million.
Analysts, in comparison, were at $358 million instead. Steve Huffman, the chief executive of Reddit told investors in the earnings release:
What’s most exciting is still ahead. We’re focused on providing a best-in-class experience for finding community and trusted information, proving that Reddit is for everyone, everywhere.
RDDT earnings arrived more than a month after it rolled out a new AI feature called Reddit Answers.
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