Is Reddit (RDDT) Pricing Reflect Its AI Licensing Deals And Recent 47% One Year Rally

• If you are wondering whether Reddit's stock price already reflects its story, or if there could still be value on the table, you are not alone in asking that question.
• Reddit's shares recently closed at US$253.81, with returns of 8.8% over 7 days, 8.4% over 30 days, and 47.3% over the last year. This has naturally raised questions about what is priced in and how risk is being viewed.
• Recent news has focused on Reddit expanding how its content is licensed for artificial intelligence training and on partnerships that put its data in front of large technology platforms. There has also been ongoing attention on how the company manages its community driven model, which helps frame how investors think about these recent share price moves.
• Reddit currently has a valuation score of 2/6, which means it screens as undervalued on 2 of 6 checks. Next, we will walk through what different valuation methods say about the stock before finishing with a way to tie them all together that can give you a clearer overall picture.

Reddit scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Reddit Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes estimates of a company’s future cash flows and discounts them back to today using a required rate of return, giving an indication of what the business might be worth on a per share basis.

For Reddit, the model used here is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month Free Cash Flow is about $503.6 million. Analysts provide Free Cash Flow estimates out to 2029, and Simply Wall St then extrapolates further to build a 10 year path. By 2035, the projection in this model reaches around $5.3b in Free Cash Flow, all expressed in US$ and discounted back to today.

On this basis, the DCF model arrives at an estimated intrinsic value of about $370.30 per share. When compared with the recent share price of $253.81, this indicates a 31.5% discount, which suggests the shares appear undervalued using this cash flow based approach.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Reddit is undervalued by 31.5%. Track this in your watchlist or portfolio, or discover 877 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Reddit.

Approach 2: Reddit Price vs Earnings

For profitable companies, the P/E ratio is a useful way to see how much you are paying for each dollar of earnings, which gives a direct link between the share price and the business’s current profitability.

What counts as a “normal” P/E depends a lot on how the market views a company’s growth potential and risk. Higher expected growth or lower perceived risk can justify a higher P/E, while slower growth or higher risk usually lines up with a lower one.

Reddit is currently trading on a P/E of 137.75x. That is well above the Interactive Media and Services industry average of 15.44x and also higher than the peer group average of 41.80x. Simply Wall St’s Fair Ratio framework estimates a P/E of 38.72x for Reddit, which is the level suggested once factors like earnings growth profile, industry, profit margins, market cap and key risks are taken into account.

This Fair Ratio approach can be more helpful than a simple peer or industry comparison because it adjusts for Reddit’s specific characteristics rather than assuming all companies with similar labels deserve the same multiple. Comparing the current P/E of 137.75x to the Fair Ratio of 38.72x, Reddit screens as expensive on this metric.

Result: OVERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1448 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Reddit Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply the stories investors tell about a company, backed by their own assumptions for future revenue, earnings, margins and a fair value that they can compare with the current share price to decide what action, if any, makes sense.

On Simply Wall St, Narratives sit inside the Community page and link three pieces together: your view of Reddit’s business story, a set of numbers that turn that story into a forecast, and a fair value estimate that updates when new information like earnings, news or guidance comes in.

Because Narratives are created by investors, you can see how different views line up. For example, one Reddit Narrative currently has a fair value around US$75.00 while another has it closer to US$235.00. This shows how the same set of facts can lead to very different conclusions once you plug in your own expectations and compare those fair values to today’s price.

Do you think there's more to the story for Reddit? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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