Is Reddit's Soaring Share Price Justified After TikTok's Surprising $14B Valuation News?

If you have been watching Reddit’s stock lately and are wondering what to do next, you are not alone. The market has been sending some pretty mixed signals this year, making it tough even for seasoned investors to settle on a clear course of action. Since the start of the year, Reddit’s share price has soared an impressive 22.8%. Over the past month, it has dropped 19.9%, and, intriguingly, moved exactly 0.0% in the last week. If you zoom out, that one-year gain of 172.0% is hard to ignore and hints at both explosive growth potential and plenty of volatility along the way.

Just beneath the surface, recent headlines about rival social media players have introduced fresh questions about Reddit’s position in the landscape. TikTok has been the center of major valuation debates and political wrangling, with reports suggesting its new U.S. operation could fetch only $14 billion, which is a dramatic contrast to previous expectations. These developments influence how investors perceive risk and opportunity in the sector and likely factor into Reddit’s recent price swings.

Of course, before making any big moves, it is smart to dive deeper than price momentum and headlines. When applying a range of standard valuation checks, Reddit currently clocks in with a value score of 2 out of 6. This means it is undervalued by some measures, but not most. In the next section, we will break down those different valuation methods and what they reveal. Stick around for a deeper perspective on what Reddit might really be worth at the end of this analysis.

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

The Discounted Cash Flow (DCF) model looks at a company’s expected cash flows in the future and calculates what they are worth in today’s dollars. This method is often used for growth companies, since it focuses on the long-term ability to generate cash rather than short-term profits or accounting figures.

Reddit currently reports Free Cash Flow (FCF) of $390 million. Analyst projections estimate this figure will surpass $2.17 billion by 2029, showing expectations for rapid growth as Reddit expands its platform and monetization efforts. While analysts provide forecasts for the next 5 years, projections beyond that are extrapolated with ten-year estimated cash flows steadily increasing, eventually reaching nearly $3.9 billion in 2035.

Using these projections, the DCF model arrives at a fair value of $295.83 per share. Given today’s market price, this represents a 31.2% discount, which may indicate that Reddit stock is significantly undervalued based on future cash flow expectations.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Reddit is undervalued by 31.2%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Reddit Price vs Sales (P/S)

The Price-to-Sales (P/S) ratio is often used to value companies that are still ramping up profitability but generating substantial revenue. Reddit, with its high growth rate and still-evolving monetization strategies, fits squarely into this category. This makes the P/S ratio a practical tool for investors tracking its valuation.

Growth expectations and the risk profile of a business dictate what is considered a “normal” P/S ratio. For high-growth tech firms like Reddit, investors are usually willing to pay a premium, expecting future improvements in margins and market share. However, bigger risks or unstable performance can lower this premium.

Currently, Reddit trades at a P/S multiple of 22.85x. This stands in stark contrast to the Interactive Media and Services industry average of 1.37x and a peer average of 3.26x. To give more context, Simply Wall St calculates a “Fair Ratio” for Reddit at 11.43x. This proprietary metric goes beyond industry averages and peer comparisons, considering factors like Reddit’s rapid growth, margin potential, unique risks, and its larger market cap. It provides a more relevant and nuanced benchmark for valuation.

Comparing Reddit’s current P/S multiple with its Fair Ratio suggests the stock is overvalued using this metric, as 22.85x is significantly above the warranted level of 11.43x.

Result: OVERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover 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's introduce you to Narratives. A Narrative is a simple, intuitive way to connect your perspective about Reddit’s business story directly to what you think its numbers will be, such as your own estimates for things like future revenue, margins, and ultimately, fair value. This approach empowers investors by turning abstract forecasts into a clear story, helping you see exactly why a certain fair value makes sense and what assumptions drive it.

Narratives on Simply Wall St let anyone in the community, millions of investors, easily create or explore these scenarios on the Reddit Community page. They are not just static opinions; they dynamically update when real-world news or earnings data arrives, keeping estimates fresh and relevant. Most importantly, Narratives let you compare your calculated Fair Value with Reddit’s current price, so you can make smarter buy or sell decisions based on reasoning that actually fits your view of the business.

For example, some investors currently see Reddit’s fair value as high as $235.00, betting on robust user growth and global expansion, while others are much more cautious, seeing fair value closer to $75.00 due to concerns about competition and monetization risks.

Do you think there's more to the story for Reddit? Create your own Narrative to let the Community know!

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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