Turns out, not every stock with a cult following is destined to moon. Case in point: Reddit just got slapped with a Sell rating from Redburn Atlantic, and the reasoning is about as brutal as a downvoted hot take regarding financial responsibility on r/wallstreetbets. 

In short the firm unleashed carnage when it set a $75 price target, implying a 42% downside. The reason for this downgrade is because according to Redburn, Reddit thinks it's Meta, when in reality, it's more like Pinterest with a rage problem. What's more is that Reddit is currently trading at 22x its projected 2027 EBITDA—which is already nosebleed territory—but if you add in stock-based compensation (aka the tech industry’s favorite accounting magic trick), that multiple jumps to 54x.

For context, Pinterest trades at a measly 10x, or 19x with stock comp included. And guess what? Pinterest actually has a functioning ad business and users who don’t actively hate brands (a.k.a. Good for ad business). Redburns take? Reddit’s valuation is “far too lofty,” especially as its growth starts to stabilize. Translation: If you’re paying these kinds of multiples, you better be growing like an AI startup, not a 19-year-old forum that just figured out how to run video ads.

(Source: Stocktwits) 

In addition, another one of Redburns biggest concerns is Reddit’s reliance on Google Search traffic. Recently, the platform saw a huge surge in logged-out users visiting through Google. Great for page views, but terrible for monetization—because guess what? You can’t serve personalized ads to anonymous lurkers. Even worse, that traffic already started shrinking, with 600,000 fewer daily active users from Google in Q4. Which means, if Reddit’s user growth is just Google’s algorithm doing it a favor, that’s not exactly a strong long-term strategy.

Now to be fair, Reddit’s current ad business is… let’s call it a work in progress. It’s trying to improve direct response ad targeting, but here’s the issue: Google and Meta dominate this space because they have decades of user data and algorithms that know you better than your own mother. 

(Source: Market Insider) 

Plus, Reddit’s audience is notoriously anti-corporate, and brands still haven’t figured out how to advertise without getting roasted in the comments. So yeah, while Reddit is making some progress, actually catching up to the ad-tech giants will take a lot more time (and money) than Wall Street wants to admit.

Bottom line: Reddit is one of the most visited sites on the internet, and it’s finally starting to figure out how to monetize. But at 54x EBITDA, investors are treating it like a high-growth AI play, not a social media site that still struggles to keep users logged in. 

(Source: Giphy) 

Redburn says the stock is overpriced, growth is slowing, and multiple compression is inevitable. And quite honestly, they aren’t wrong. Meaning, if Redburn is right, and Reddit can’t justify its valuation soon, this thing might be headed back towards double digits. For now though, keep your eyes on today's price action as the stock is feeling the heat down -10.81%. And as always, stay safe and stay frosty, friends! Until next time… 

P.S. You know that feeling when an insider sells $2.5 million shares of a chip stock that’s “supposed” to be the next Nvidia? If you don’t, then you need to join Stocks.News premium asap to get the first-hand look at these massive insider transactions before the rest of the retail world catches on. Spoiler: The stock has soared 400% over the last 12 months—so why in the hell is the Chief Technology Officer of this high-flying stock dumping his bags now? 

Stocks.News holds positions in Meta and Google as mentioned in the article.