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On Friday, Citi analysts maintained a positive outlook on Reddit (NYSE:RDDT), increasing their price target from $150.00 to $158.00 while reaffirming a Buy rating on the shares. Currently trading at $118.79, the stock sits between its 52-week range of $45.72 to $230.41. According to InvestingPro analysis, Reddit appears overvalued at current levels, despite the social media platform reporting first-quarter results that exceeded expectations, with a significant acceleration in ad revenue growth and a substantial increase in daily active users.
Reddit’s advertising revenue surged by 61% year-over-year, matching the company’s impressive overall revenue growth rate of 61.71%. With an exceptional gross profit margin of 90.49% and a strong current ratio of 12.63, the company demonstrated robust financial health, earning a "GOOD" rating from InvestingPro. The platform’s daily active users (DAU) saw a noteworthy rebound, adding 6.4 million users in the first quarter, which was a step up from the 4.5 million net additions in the fourth quarter of 2024.
The company’s recent success is attributed to increased user engagement and the introduction of new features such as Reddit Answers, which have drawn in additional users. The growth in active advertisers, which rose by over 50% year-over-year, was also a key factor in the company’s strong performance. Management indicated that this momentum continued into April.
Although there has been some concern regarding a potential slowdown in DAU growth due to changes in Google’s algorithm in December and March, Citi analysts believe this will not negatively affect Reddit’s revenue growth. The engagement levels are on the rise, and the return on ad spend (ROAS) is improving.
Looking ahead, the anticipated broader rollout of Reddit Answers and the expected launch of Direct Purchase Ads (DPA) for shopping this year are seen as potential catalysts for continued growth in both the user base and revenue. Analysts expect sales growth to continue, with revenue forecast to grow 36% in the current year. With these developments in mind, Citi has reiterated its Buy rating and raised its target price for Reddit stock. For deeper insights into Reddit’s growth potential and comprehensive financial analysis, including 12 additional ProTips and detailed valuation metrics, visit InvestingPro.
In other recent news, Reddit Inc. reported impressive financial results for Q1 2025, with revenue reaching $392 million, a 61% increase year-over-year. The company’s earnings per share (EPS) stood at $0.13, significantly surpassing analyst expectations of $0.01. Reddit’s advertising revenue also grew by 61%, amounting to $359 million, while other revenue streams like data licensing saw a 66% rise. This robust performance has led to positive investor sentiment, as reflected in after-hours trading. Additionally, Reddit has provided optimistic guidance for Q2 2025, projecting revenue between $410 million and $430 million. In another development, Bernstein SocGen Group upgraded Reddit’s stock rating from Underperform to Market Perform, raising the price target from $110.00 to $130.00. This upgrade acknowledges Reddit’s strong management and strategic business activities. Despite challenges such as dependency on Google (NASDAQ:GOOGL)’s algorithm and competition in the social media space, Reddit’s focus on expanding its advertiser base and enhancing product offerings has been well-received.
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