On Wednesday, Jefferies maintained its "Buy" rating on Reddit (RDDT.US) and raised the social media platform's target price from $230 to $300. The firm believes the platform could gain approximately 65 basis points of market share in U.S. digital advertising spending over the next four years, an increase comparable to peers like Snap (SNAP.US) and Pinterest (PINS.US). Based on Reddit's current stock price of $240.20, this new target price implies approximately 25% potential upside. Reddit currently has a market capitalization of about $45 billion.
Reddit's stock reached an intraday record high of $255.30 and closed up 7.8% at $259.03. This follows the company's revenue growth climbing to multi-year highs, while daily active user (DAU) trends have recently stabilized. Jefferies noted that "revenue growth sustainability" has become a central discussion topic surrounding Reddit.
According to InvestingPro data, Reddit achieved impressive revenue growth of nearly 70% over the past 12 months, supported by a high gross margin of 91%. Through analysis of peer market share trajectories during early commercialization phases, Jefferies found that Reddit's revenue could exceed broad market expectations by more than 35% by 2027.
The research firm highlighted that Reddit possesses a vast and continuously growing database of user-generated contextual content, whose value to third-party generative AI models will continue to become more prominent. Additionally, the firm emphasized that the data licensing business represents an "underappreciated call option" that could provide greater growth opportunities for Reddit's EBITDA. The firm expects that by the first half of 2027, Reddit may significantly increase data licensing revenue through renegotiation when data licensing agreements come up for renewal.
These factors collectively support Jefferies' optimistic outlook on Reddit stock, with the firm stating this creates an "attractive risk-reward profile" for investors.
Recent developments show Reddit reported strong second-quarter results, with revenue and EBITDA exceeding the upper end of guidance by $70 million and $37 million, respectively. Advertising revenue growth accelerated to 84% year-over-year, showing significant momentum.
Following these positive results, multiple investment banks adjusted their ratings and price targets for Reddit:
Deutsche Bank expressed confidence in the second-quarter performance and better-than-expected third-quarter guidance, raising its target price to $205 while maintaining a "Buy" rating.
Morgan Stanley noted Reddit's user metrics outperformed expectations and raised its target price to $230.
Citizens JMP increased its target price to $225 following the earnings release while maintaining an "Outperform" rating.
Bank of America recognized the company's excellent execution and 50% increase in advertiser count, raising its target price to $180.
RBC Capital focused on growth sustainability, maintaining a "Sector Perform" rating with a target price of $210.
These developments reflect analysts' positive sentiment toward Reddit and the company's solid financial performance.
Comments