Reddit (RDDT) Tests Its Valuation On Google AI Data Limits And Earnings Hope

Event puts Reddit’s data and earnings under the spotlight

Reddit (RDDT) is back in focus after reports it may restrict Google’s use of its content for AI training, just as investors watch for the next quarterly earnings release.

Recent swings in Reddit’s share price reflect that push and pull. The stock has eased back with a 1-day share price return of 2.02% and a 7-day share price return of 2.36%. However, the 30-day share price return of 3.51% points to short-term momentum trying to recover after a steeper year-to-date share price decline of 35.45% and a 1-year total shareholder return fall of 19.91%, as investors weigh AI data licensing risks against optimism around the upcoming earnings release and media attention from shows like CNBC’s “Mad Money.”

Scan how other social and AI exposed platforms are priced right now by comparing Reddit with a hand picked group of 33 high quality undervalued stocks.

Reddit now trades well below recent highs while analysts flag a sizeable gap to their targets and data licensing questions linger. Does that mix still tilt the risk reward in favour of new buyers, or not?

Most Popular Narrative: 50% Undervalued

The most followed narrative on Reddit values the stock at a fair value of about $309.77 per share, roughly double the last close of $156.14. This puts investor attention squarely on whether usage and monetization can justify that gap.

Future revenues will grow substantially as user DAU accelerates the number of ads shown. I have set a yearly growth rate of 40% which may diminish in 3-5 years but may be undervalued currently. While future PE comes down in line with FB at around 35. This gives an overall valuation about $300 per share.

See why 29 investors see Reddit as 50% undervalued.

That narrative, according to kinnth, leans heavily on Daily Active Users and the idea that a highly engaged base can support both advertising and AI data licensing over time. It treats Reddit’s communities as a differentiated source of real world problem solving content that could be valuable to external partners training large models.

Supporters of this view also point to the platform’s path to profitability. Reddit reported revenue of $2.78b and net income of $871.10m, with current net profit margins of 31.3% compared with 13% last year, and a Return on Equity of 26.5% that is described as high. Earnings growth has been very large over the past year and, based on available forecasts, earnings and revenue are both expected to grow at more than 20% per year.

There are, though, some clear pushbacks baked into the data. The stock is described as expensive on a P/E of 34.5x when compared to both the US Interactive Media and Services industry average of 11.5x and a fair P/E estimate of 29.5x, and it scores just 2 out of 6 on value checks. The share price has also declined 19.9% over the past year while the broader US market and sector posted positive returns.

That leaves a valuation picture where the narrative fair value of about $309.77 per share and the Simply Wall St DCF estimate of $349.31 both sit well above the current $156.14 price, while traditional multiples frame Reddit as richly priced versus peers. Investors weighing this gap are effectively deciding how much confidence to place in sustained high growth in usage, margins and cash flows, especially if Reddit further tightens control over how its data is used.

Result: Fair Value of $309.77 (UNDERVALUED)

Still, Reddit’s premium P/E compared with the US Interactive Media and Services average, and any setback to AI data licensing talks, could quickly undercut this optimistic growth story.

Find out about the key risks to this Reddit narrative.

Another view on Reddit’s valuation

Price tells a different story to the bullish fair values. Reddit trades on a P/E of 34.5x, while the US Interactive Media and Services group sits at 11.5x and the fair ratio is 29.5x. That richer tag can turn quickly if growth or sentiment cools. Which reference point matters most to you?

For a closer look at how that earnings multiple compares and what it might imply for upside or downside risk, have a read of our valuation breakdown via See what the numbers say about this price — find out in our valuation breakdown..

Next Steps

Mixed signals around Reddit’s valuation story are clear. Move quickly, review the full data set, and weigh the 3 key rewards and 1 important warning sign.

Looking for more investment ideas beyond Reddit?

Do not stop with a single ticker. Broad idea hunting often uncovers opportunities that fit your goals better than the obvious headline stocks everyone already watches.

• Target potential income resilience by scanning a curated universe of companies with strong payouts through the 8 dividend fortresses.
• Spot sturdier balance sheets by filtering for businesses with durable finances using the list of solid balance sheet and fundamentals (25 results).
• Hunt for under the radar opportunities with robust fundamentals by checking the 20 high quality undiscovered gems.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com