Reddit Stock Surges on New Buy Rating. Why Analysts Are Getting Bullish. -- Barrons.com

By Mackenzie Tatananni

Reddit stock was on the rise Friday after Guggenheim analysts initiated coverage at Buy, citing steady consumer interest in the social-media platform.

Shares of the social networking company was up 5.7% to $172.12 in afternoon trading. Reddit stock is up 401% from its initial public offering and up 237% from its first close on March 21, according to Dow Jones Market Data.

Analysts led by Michael Morris set a price target of $210 as they issued their first rating on the stock, saying that Reddit is "in the early innings of a multi-year growth cycle."

"We believe Reddit is poised to capitalize on strong social media growth in the quarters and years ahead," the analysts wrote, citing the platform's "highly engaged global user base" as a possible driving factor.

Guggenheim noted that consumer interest in Reddit has continued to grow, with the daily user base gaining 47% over the past 12 months and searches for Reddit on third-party search engines like Google reaching an all-time high.

Also contributing to Reddit's growth are "significant ad monetization improvement opportunities," the analysts added, with ad loads, pricing, and new advertising formats "providing meaningful runway."

Morgan Stanley made a similar call when the firm upgraded Reddit to Overweight from Equal Weight earlier this month, pointing to upsides in ad loads and rising ad pricing in the future.

The company reported a surprising surge in revenue for the quarter ended Sept. 30, triggering a rally in the stock. Advertising accounted for the bulk of Reddit's third-quarter revenue, at $315 million, while total revenue of $348 million far exceeded Wall Street's estimate for $314 million. Earnings per share also crossed into positive territory for the first time.

"Looking into 2025, we expect investor interest in the industry revenue growth leader to remain high, we see consumer engagement continuing to grow, and we forecast financial performance will meaningfully outperform current consensus estimates," Guggenheim wrote.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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December 20, 2024 13:03 ET (18:03 GMT)

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