Reddit’s (RDDT), which was listed in March, had a fantastic year in 2024. Its stock price soared by 250% from the first day of its closing.
Wall Street has embraced the social media company, which is 19 years old. The stock’s trajectory has made it a Wall Street darling.
Reddit received 13 Buy ratings by analysts, compared to seven neutral recommendations and one Sell recommendation.
Analysts’ opinions on RDDT and its forecast for 2025
Morgan Stanley raised its rating for the stock to “overweight”, with a $200 price target.
Analysts at brokerage said that Reddit was a platform with the ability to surpass its competitors in terms of user engagement, advertising revenue, and time spent.
Reddit’s platform has become more monetized through advertisements as the user base continues to grow.
Reddit is expected to reach $1.28 billion sales in 2024. This represents a significant increase over the $804 million that was sold in 2023, and from $668 millions in 2022.
Needham analyst Laura Martin raised her price goal to $190 from $120. She also maintained Reddit’s status as “conviction” list stock. Martin stated in a client note dated December 11, that:
Our view is that the key drivers of Reddit’s growth will be higher Reddit shopping and search revenues and increased international revenue from closing (average revenue per users) gaps compared to US. US users.
She added, “From a global perspective, we anticipate that the markets and advertising demand will be higher in 2025 than they were in 2024 due to a more positive attitude among business people.”
Colin Sebastian, Baird’s analyst is cautious and gives a neutral score. However, he does acknowledge “near term upside”, driven by advertisers interest and platform improvements.
Sebastian said that AI, automation and targeting tools, as well as AI-powered technologies, could help advertisers unlock more revenue.
Search and AI: Challenges and Opportunities
Reddit has benefited from its heavy dependence on Google’s search traffic.
Steve Huffman, Reddit’s Chief Executive Officer, said during a call with analysts in late October that the term “Reddit”, was the 6th most Googled of 2024.
Huffman acknowledges that Google’s algorithms are “capable of giving and taking away”, which implies that they could have an unpredictable impact on user traffic.
Reddit Answers, a feature powered by AI that allows people to submit their search queries straight to Reddit, has been announced as a way of mitigating this risk.
Mark Shmulik, Bernstein’s analyst, has expressed his skepticism and suggested that these investments might not have a significant impact on margins near-term.
Shmulik, who rated Reddit as underperform in an earlier note, said, “The test (second half of 2024) has passed but an expensive share has investors jumping a grade above us.”
Earnings for the December quarter will test rally
Reddit’s earnings for the December quarter, which are expected to be released in February, will provide investors with a good indication of whether or not its recent rally is sustainable.
Shares of the company soared 42% on one day after its October third quarter results revealed a surprising profit with 68.8% growth in sales.
Reddit’s stock is resilient despite its recent drop.
The closing price on Friday was $173.52. This is down by 1.8%, but it remains above the 21-day moving median.
Investor’s Business Daily IBD’s IBD stock Checkup shows that Reddit IBD’s Composite Rating is at 96, out of 99.
This score is a combination of five proprietary ratings. Reddit is a leader in growth stocks with a Composite rating of 90 and above.
Investors will be looking for growth in the future to justify Reddit’s premium price.
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