After surging and sinking following its March IPO, Reddit (NYSE:RDDT) stock has continued to experience choppy price performance. However, based on some recent analyst ratings, RDDT is becoming one of the sell-side’s favorite social media stocks.
Over the past few weeks, analysts from Needham and Roth MKM have both issued “buy” ratings on the social platform operator’s shares. Yet while plenty are arguing the bull case for RDDT, one can build a substantial bear case for the stock as well.
As I argued earlier this month, RDDT at present levels prices-in the potential for further monetization of its platform, and could come under pressure once its IPO lockup expires and major shareholders become able to cash out.
In contrast to this unfavorable risk/return profile, there are several social media stocks that are stronger opportunities. In particular, these three standouts in the space.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) may be in free-fall following its latest quarterly earnings release, but this sell-off could in time prove to be an overreaction. Although the Facebook and Instagram parent delivered disappointing guidance, revenue and earnings beat expectations.
Even as the company plans to ramp-up AI infrastructure spending, which may affect near-term profitability, in the long run this effort could drive the next wave of earnings growth for META stock. That’s not all. Keep in mind too that, considering macro and sector-specific uncertainties, investors have been jittery about big tech stocks.
These fair weather fans exiting today could end up crawling back into positions when better news arrives and/or market sentiment improves. While the dust may not settle immediately, so tread carefully. However, consider seizing the opportunity with this bona fide “buy the dip” situation if this latest round of weakness continues.
Pinterest (PINS)
META’s sell-off has spilled over into other social media stocks. Pinterest (NYSE:PINS) is no exception. However, a further slide for shares is making an already reasonably priced social media an even better buy for patient investors.
Pinterest’s last earnings release in February may have elicited a negative reaction from the market, but there were some promising takeaways. Namely, a strong indication that the company’s turnaround was starting to take shape. During Q4, monthly active users reached a record high.
Revenue increased by double-digits, and the company reported a big jump in profitability. Between now and 2026, as user growth and improved monetization further enhance the bottom line, annual earnings could reach $2.01 per share, per sell-side forecasts.
This in turn may result in a big rebound for PINS stock, due to rising in line with increased earnings, as well as due to multiple expansion.
Yelp (YELP)
If you’re looking for a value play among social media stocks, Yelp (NYSE:YELP) is your top choice. While shares in the company, which operates a social media platform featuring local business reviews, have performed well over the past year, they continue to trade at a steep discount to other names in the space.
At current prices, YELP stock sports a forward multiple of just 12, well below that of peers. Yes, there is some rationale behind YELP’s low valuation. After increasing revenue 12% in 2023, thanks largely to enhancements to its platform, Yelp expects revenue growth to slow down to the mid single-digits in 2024.
However, with expectations already set low, the company could wow investors in the coming quarters. Growth could come in higher-than-expected, whether through further platform enhancements, or via increased advertiser demand. As it continues to trade at deep value prices, make YELP a buy.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
