B. Riley broadens coverage on social media stocks with Snap and Reddit initiations

B. Riley started coverage on Snap (NYSE:SNAP) with a “neutral” and Reddit (NYSE:RDDT) with a “buy” investment rating on Friday, increasing its picks under social media and internet stocks.

The research firm believes that SNAP’s sizable audience positions the company to generate growing advertising and subscription revenue streams, and said RDDT offers a differentiated value proposition to users, advertisers, and content licensees through its unique platform and has a large and growing repository of curated content.

Key points on Snap: B Riley thinks brand advertising is likely to be an overhang on overall growth and sees Snapchat+ as a strong grower and likely to sustain the trend near term. They believe ad tech improvements will likely benefit monetization for the company, among other things. EBITDA margin is forecast to improve over the next several years, rising from 3.6% in 2023 to 23.9% in 2028 and to 30.3% in 2030.

“We expect direct-response ads to be the primary drivers of growth over the near term and expect brand ad growth on the platform to lag. Arguably, a pickup in North American time spent and monetization gains from ad platform improvements could drive potential upside to our estimates, but it is hard to predict the magnitude and timing,” B Riley said in their September 19 research.

Key points on Reddit: The research firm believes content licensing represents a meaningful opportunity for the company, and there are multiple levers to drive ad-driven monetization higher over time. They think international growth for the company is expected to be aided by content translation, and there is room for material margin expansion over time.

“We believe Reddit is still in a relatively early phase of monetizing the platform through advertising and data licensing to train AI’s large language models (LLMs) and is positioned for healthy top-line growth and margin gains over the next several years,” the research firm said.

SNAP has a price target of $11, implying an upside of 11%. RDDT was assigned a $75 PT, representing an upside of 16%.

Snap is down 41% so far this year. Stock is rated “hold” by Wall Street and Seeking Alpha Quant and has a “buy” rating from SA analysts on average.

Reddit is up 92% YTD, while the benchmark S&P 500 is up 20%. RDDT is rated “buy” from Wall Street and SA analysts. It does not have a Quant rating.