What Happened?
Shares of online community and discussion platform Reddit (NYSE: RDDT) jumped 5.8% in the afternoon session after analysts at Citigroup and Guggenheim reiterated their "buy" ratings. Citigroup raised its price target on the stock from $158 to $163, suggesting potential upside from its previous close.
Similarly, Guggenheim reaffirmed its "buy" rating with a $165 price target. The positive analyst sentiment comes amid growing interest in Reddit's role in the artificial intelligence space, particularly through collaborations like its deal with Alphabet's Google to use its vast user-generated content for training AI models. This has fueled investor optimism about the company's future growth and monetization strategies, despite recent volatility and a class-action lawsuit related to disclosures about its user growth.
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What The Market Is Telling Us
Reddit’s shares are extremely volatile and have had 64 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 8 months ago when the stock gained 42.4% on the news that the company reported strong third-quarter earnings.
Reddit beat revenue and EBITDA, especially despite the slight DAU underperformance. However, platform engagement was still strong, with Logged-out users up 70% year-over-year.
Notably, the company reported that "Reddit" was the sixth most Googled word since the start of the year, pointing to the strong potential to convert more internet users to its platform. It also highlighted the potential to continue to grow and optimize ad revenue as the company continues to experiment with new ad formats.
The company's optimistic EBITDA forecast for the next quarter also blew past analysts' expectations. Overall, this was a great quarter for the company.
Reddit is down 14.4% since the beginning of the year, and at $141.97 per share, it is trading 37% below its 52-week high of $225.23 from February 2025. Investors who bought $1,000 worth of Reddit’s shares at the IPO in March 2024 would now be looking at an investment worth $2,815.
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