Four-star-rated analyst James Cordwell at Redburn Atlantic has initiated coverage on Reddit (RDDT) stock, but it’s not good news for investors. That’s because Cordwell has assigned a Sell rating to RDDT stock with a price target of $75, which implies a downside of 40.3% from current levels. Cordwell argues that Wall Street underestimates its dependence on Alphabet’s (GOOGL) Google Search and the challenges in growing its advertising business. RDDT stock dropped over 2% on Monday, extending its year-to-date decline to 23.18%.
Notably, Cordwell primarily covers U.S. technology stocks and currently holds the #1,351 ranking among 9,416 analysts tracked by TipRanks. He has a 71% success rate with an average return per rating of 15.10% over one year.
Here’s Why Redburn is Bearish on RDDT Stock
Redburn believes Reddit’s growth depends too much on Google Search, which has temporarily boosted user numbers but isn’t a long-term advantage. Meanwhile, Cordwell pointed out that Reddit’s recent traffic surge has been largely fueled by logged-out users accessing the platform through Google Search. He added that Google’s algorithm change is already impacting Reddit, with U.S.-based daily active users (DAUs) arriving via Google Search dropping by 600,000 sequentially in the fourth quarter.
On the other hand, he stated that the logged-in user growth, which is crucial for monetization, has remained stagnant for Reddit.
Redburn Raises Concerns over Reddit’s Advertising Business
On the advertising front, Redburn also acknowledges short-term revenue gains but questions Reddit’s long-term monetization potential.
Additionally, Redburn analysts noted that Reddit is working on improving its direct response ad-targeting capabilities. However, they point out that, apart from tech giants like Google and Meta (META), most companies struggle to get this right without setbacks. They also warn that Reddit may need years of investment before it can achieve steady growth in its advertising business.
Redburn Flags Valuation Concerns for RDDT Stock
Furthermore, Cordwell believes Reddit’s stock is overvalued compared to industry peers and warns of significant downside risks to current market expectations. Redburn estimates that Reddit is trading at 22 times its projected enterprise value (EV) to adjusted EBITDA for fiscal year 2027. When including stock-based compensation (SBC), this multiple rises to 54x, highlighting a steep valuation.
In comparison, content-sharing platform Pinterest (PINS) is significantly cheaper, trading at 10x its FY27 EV/adjusted EBITDA, or 19x when accounting for SBC. Redburn has a Buy rating on PINS stock.
Is Reddit a Good Stock Buy?
Overall, Wall Street has a Moderate Buy rating on RDDT stock based on 12 Buys, six Holds, and one Sell assigned in the last three months. The average Reddit share price target of $204.28 implies a 62.7% upside potential.
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