Reddit is still weeks away from trading in public markets, but it already has its first bullish Wall Street analyst research note.
NewStreet Research analyst Dan Salmon picked up coverage of the company, with a base case valuation of $10.4 billion. Salmon writes that he will follow up with a price target and stock rating once trade commences.
His bear case on the stock is a valuation of $5.3 billion, and his bull case would value Reddit at $16.7 billion. To put that in perspective,
Pinterest
has a valuation of $24.8 billion. Snap’s market cap is $18.5 billion.
Reddit, which filed for an IPO a week ago, plans to list on the New York Stock Exchange under the ticker RDDT. The deal is being co-managed by
Morgan Stanley,
Goldman Sachs,
J.P. Morgan,
and BofA Securities. Reddit so far has not disclosed how much money it intends to raise.
While details on the deal are scant, Salmon nonetheless writes that typical low IPO float combined with early retail demand “could leave institutional holders with a tidy one-day profit if they choose to unload after a first-day pop.” But he thinks that, depending on how the stock behaves, they might want to consider holding on.
Salmon is particularly bullish on Reddit’s potential to license data for AI large language model training applications.
According to the IPO filing, Reddit had 2023 revenue of $804 million, up 20.6% from 2022. Most of that comes from advertising, but the company also sees an opportunity to license its data. Reddit said it is in “the early stages of allowing third parties to license access to search, analyze, and display historical and real-time data from our platform.”
Salmon sees revenue for 2024 accelerating to $1.16 billion, which would be 44% growth, with a further 34% jump in 2025 to $1.55 billion.
Reddit had a loss in the latest year of $90.8 million, narrowing from a loss of $158.6 million in 2022. The company also incurred a loss in terms of adjusted Ebitda—or earnings before interest, taxes, depreciation, and amortization—of $69.3 million, compared with a loss of $108.4 million on the same basis in 2022.
Reddit reported negative free cash flow in the latest year of $84.8 million, slightly less than the $100.3 million of negative free cash flow in 2022.
Salmon thinks Reddit will turn an adjusted Ebitda profit this year of $172 million, growing to $326 million in 2025, and $525 million in 2026.
“Our upside and downside valuations are based on a scenario analysis for the newly launched data licensing business,” Salmon writes.
His base case has data licensing reaching 32% of total revenue by 2027. His update case puts that figure at 45%. His downside case assumes “AI winter” begins in mid-2026 and the company begins losing data licensing customers.
Salmon notes his base case valuation of $10.4 billion implies Reddit would trade at 8 times revenue and 60 times adjusted Ebitda. Pinterest, the most obvious comparable company for Reddit in the public market, trades for about 7 times revenue. Snap trades at 4 times revenue.
Salmon notes Reddit’s top 10 advertisers accounted for 26% of 2023 revenue, “a more top-heavy, large brand business than we would have expected.” He expects penetration into the small- and medium-sized business market to improve diversification.
The analyst notes that retailing—the largest online ad category—is classified by the company as an emerging vertical. That makes him wonder if Reddit is primed for a partnership with
Amazon
similar to those the e-commerce giant has with
Meta,
Pinterest,
and
Snap.
In the IPO filing, Reddit reports that it sees opportunities to add commerce to the platform.
The largest single investor in Reddit is Advance Magazine Publishers, a company controlled by the Newhouse family, which owns Condé Nast, American City Business Journals, and other media properties. Advance owns a 30.1% stake in Reddit.
OpenAI CEO Sam Altman holds an 8.7% stake. Other large investors include Fidelity, with 8.4%; the venture funds Quiet Capital and Tacit Capital, both tied to the investor and former NFL football player Ben Mahdavi, with 6.8%; the Chinese internet giant Tencent, with 11%; and Vy Capital, an investor firm formed by Alexander Tamas, a former partner of the Russian billionaire investor Yuri Milner, with a 5.1% stake. CEO Steve Huffman has a 3.3% stake.
Write to Eric J. Savitz at [email protected]
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