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Market Analysis
Reddit Stock Jumps as MS Sets New PT, Ad Revenue Expected to Hit $3.1B by 2027
Reddit's stock has gained momentum following a Morgan Stanley upgrade, driven by strong engagement metrics and a promising advertising pipeline.
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Reddit (NASDAQ: RDDT) has captured significant attention following Morgan Stanley’s recent upgrade of the company’s stock to “overweight,” with a price target of $200. This development has contributed to a notable increase in Reddit’s share value in today’s trading session.
The upgrade is attributed to Reddit’s robust engagement metrics, promising advertising pipeline, and pivotal growth drivers. The company’s strategic investments in enhancing user interaction and advertising innovation are also highlighted as key factors supporting this positive market outlook.
MS Expects 35% Annual Growth in Reddit’s U.S. Ad Revenue from 2024 to 2027
Morgan Stanley’s analysis projects a 35% annual growth in Reddit’s U.S. advertising revenue from 2024 to 2027, with global ad revenue expected to reach $3.1 billion by 2027.
The firm anticipates Reddit’s EBITDA to hit $1 billion by 2026 and $1.4 billion by 2027. With these projections, Morgan Stanley sees a potential 23% upside in Reddit’s stock, with a bull case suggesting an 85% increase, setting a price target of $300.
However, the analysis also acknowledges risks such as sustaining growth and competition from larger platforms, which could impact future performance.
Reddit to Add New AI Feature in the Form of Reddit Answers
In addition to financial metrics, Reddit is making strides in technological innovation with the introduction of Reddit Answers, an AI-powered chatbot designed to enhance user interactions.
Initially being tested with a limited number of U.S. users, the feature aims to facilitate information discovery and stimulate discussions on the platform. The chatbot utilizes AI models from Reddit, OpenAI, and Google (NASDAQ: GOOG), and there are plans to expand its availability to more languages and locations. This initiative is part of Reddit’s broader strategy to leverage AI and user data, which analysts view as a promising avenue for growth.
Reddit’s stock performance has been impressive, with a 4.8% increase following the announcement of Reddit Answers’ expansion.
Since its IPO in March 2024, the stock has surged by 222.7%. As of December 9, 2024, the stock opened at $171.50 and reached a high of $180.74, marking its 52-week peak. The current price stands at $175.83, reflecting investor confidence in Reddit’s strategic direction.
Key financial metrics include a forward PE ratio of 73.96 and a market capitalization of $30.87 billion, with a recommendation mean of 2.12, indicating a general buy consensus among analysts.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
Tim Fries
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
