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On Wednesday, Baird analyst Colin Sebastian reduced the 12-month price target for Reddit (NYSE: RDDT) shares to $125 from the previous target of $185, while retaining a Neutral rating on the stock. Currently trading at $88.89 with a market capitalization of $16.08 billion, Reddit has shown impressive revenue growth of 61.71% in the last twelve months. Sebastian's assessment suggests that the social media platform's new product initiatives and potential revenue sources, such as enhancements in search and shopping capabilities, may not materialize as early as the broader market anticipates. According to InvestingPro analysis, the company maintains strong fundamentals with 12 additional key insights available to subscribers.
Sebastian noted that while the consensus estimates expect Reddit to benefit from these new developments in 2025, his projections are more conservative, predicting a significant impact in 2026. Despite current challenges, Reddit boasts an impressive gross profit margin of 90.49% and maintains strong liquidity with a current ratio of 12.63. He explained that the revised price target reflects a cautious outlook towards Reddit's susceptibility to broader market fluctuations, often referred to as "macro-gyrations," which could be more pronounced for Reddit compared to the established digital advertising duopoly of Google (NASDAQ:GOOGL) and Facebook (NASDAQ:META).
The Baird analyst underscored that the decision to lower the price target was also influenced by a downward trend in valuation multiples for comparable companies. Despite this adjustment in the price target, Sebastian mentioned that there would be no changes to the earnings estimates for Reddit at this time. This decision is based on the fact that some of the potential risks had already been factored into their last estimate revision.
In his commentary, Sebastian stated, "We remain below-consensus for Reddit based on our view that new products and revenue streams (e.g., search and shopping) are more likely to inflect in 2026 versus consensus/street expecting benefits in 2025, and our view that Reddit is more exposed than the duopoly to macro-gyrations." He added that the previous anticipation of some of these issues had precluded the need for a further revision of their earnings estimate.
The new price target of $125 represents a significant reduction from the previous target of $185, indicating a more conservative stance on the company's near-term growth prospects. Based on InvestingPro's Fair Value analysis, Reddit currently appears undervalued, with analysts expecting both sales and net income growth this year. Reddit, like many other tech companies, is navigating an environment where investor sentiment and market dynamics can shift rapidly, often in response to external economic factors. For deeper insights into Reddit's valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Reddit's financial landscape has seen multiple updates from prominent analyst firms. Piper Sandler increased Reddit's price target to $220, maintaining an Overweight rating, following a review of user engagement trends that indicated a rebound in January after a dip in December. Needham reiterated its Buy rating and $220 price target, highlighting Reddit's potential to achieve 1 billion daily active users and emphasizing growth areas like video content and international expansion. Meanwhile, Raymond (NSE:RYMD) James adjusted its price target to $200, keeping a Strong Buy rating, citing Reddit's substantial user base and the platform's value in the evolving AI and search landscape.
Guggenheim reduced Reddit's price target to $170 but maintained a Buy rating, reflecting confidence in the company's advertising revenue trajectory and potential user growth. Citizens JMP also lowered the price target to $155, while maintaining a Market Outperform rating, basing the adjustment on a projected EBITDA for 2026. Each firm underscored various growth strategies and challenges, with analysts from Needham noting concerns like competition and data licensing issues. These recent developments provide investors with a spectrum of perspectives on Reddit's financial outlook and strategic initiatives.
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