Investing.com -- Analysts at B Riley have initiated their coverage of internet names Snap and Reddit.
In a note to clients, the analysts said that Snap, the California-based short-form video platform, has a "sizable audience" that positions the company to generate growing advertising and subscription revenue streams and to increase profitability.
The analysts added that while they expect direct-response advertising -- or a marketing strategy that prompts users to take immediate action -- to be the "primary drivers of growth in the near term," they flagged that growth of ads for specific brands will "lag" due to increased competition presented by other social media outlets and streaming services like Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) Prime.
"Brand ads, which account for approximately one-third of the total ad spend, have remained relatively weak in recent periods," the analysts said.
They also argued that, with Snap shares trading at a "premium to [its] peer group," they find its valuation to be "full" and are opting to "stay on the sidelines." They started coverage of the company with a "Neutral" rating and an $11 price target.
Meanwhile, the B Riley analysts said in a separate note that they believe the social media site Reddit has a "differentiated value proposition to users, advertisers, and content licensees" through its "growing repository of curated content."
"Reddit is in a relatively early phase of monetizing the platform through advertising and data licensing and is positioned for healthy top-line growth and margin gains in the coming years," the analysts wrote.
The company, which went public in March, has been pushing to monetize its offerings beyond a focus on advertising. In May, OpenAI announced a deal with Reddit that will allow it to access the company's trove of content to train its artificial intelligence models.
The analysts called the risk-to-reward profile of Reddit "attractive" as they kicked off their coverage of the stock with a "Buy" rating and a $75 price target.