Investing.com -- Reddit shares have fallen 50% over the past month, but Loop Capital sees the decline as a buying opportunity. 

“We understand that we are in a risk-off market environment, and that RDDT has been one of the top performing stocks over the past year, but we believe the 50% drop in the past month is excessive,” analysts wrote.

Loop Capital reiterated its Buy rating and $210 price target, noting that at $107, Reddit’s stock is trading at just 23x next year’s EBITDA estimate. 

The firm also highlighted that Reddit’s revenue and EBITDA growth projections outpace those of its high-growth digital peers. 

“We are projecting a 36% revenue growth and 87% EBITDA growth this year, more rapid than consensus estimates of the other high-growth digital companies we track.”

The firm emphasized Reddit’s strong financial results in 2024, which “wildly exceeded ours and Street estimates.” 

The company reported 93 million daily active users (DAUs), up 43%, and $1.3 billion in revenue—far surpassing initial projections of 81 million DAUs and $977 million in revenue.

Looking ahead, Loop Capital believes Reddit has significant potential to increase average revenue per user (ARPU) by improving ad tools, expanding ad surfaces, and attracting more advertisers. 

The firm wrote: “The growth in ARPU should be driven by better ad tools, eventually a product matching META (NASDAQ:META)'s Advantage+, advertising on more surfaces including a larger ad load on the comments page and potentially search advertising.”

Additionally, the firm pointed to Reddit’s ambitious long-term target of reaching 1 billion DAUs, a goal set by CEO Steve Huffman. “We would have been happy with a 500M target – 100M in the US and 400M overseas.”

With $1.8 billion in net cash and projected free cash flow of $475 million this year, Loop Capital wouldn’t be surprised if Reddit launches a share buyback program.

Related Articles

Buy pullback in Reddit stock, this internet analyst says

Poland stocks lower at close of trade; WIG30 down 0.24%

Denmark stocks lower at close of trade; OMX Copenhagen 20 down 2.69%