JPMorgan raises Reddit stock price target to $185

On Thursday, JPMorgan analyst Doug Anmuth increased the price target on Reddit (NYSE: RDDT) shares to $185 from the previous $142 while maintaining a Neutral rating. The adjustment follows a dip in Reddit’s stock price, which fell by 13% after the market closed, attributed to a slower-than-anticipated growth in daily active users (DAUs) and a slightly weaker first-quarter revenue forecast, despite lofty expectations. According to InvestingPro data, Reddit currently trades near its 52-week high of $230.41, with analyst price targets ranging from $105 to $250, reflecting mixed sentiment about the company’s valuation.

Reddit’s DAU growth experienced a slowdown after Thanksgiving, particularly among U.S. users who are not logged in. This was largely due to changes in Google (NASDAQ:GOOGL)’s search algorithm, which is responsible for approximately 40-50% of Reddit’s traffic. Additionally, issues with Google’s data scraping capabilities led to lower rankings for Reddit, combined with the usual drop in activity during the holiday season. Nonetheless, these challenges did not affect the growth of logged-in users or fourth-quarter revenue, and the company has indicated that search traffic has begun to recover in the first quarter to date.

Despite the headwinds faced with DAU growth, Reddit has continued to perform well and capture a larger share of advertiser budgets. The company has seen a healthier advertising market backdrop, with ad revenue growth accelerating to 60% year-over-year in the fourth quarter, compared to 56% year-over-year in the third quarter. This growth was driven by strength across the full advertising funnel, with ten of Reddit’s top fifteen verticals growing by more than 50%. Performance ads were particularly strong, accounting for more than half of the fourth-quarter growth and approximately 60% of total ad revenue. Additionally, revenue from top-of-funnel ads grew at the fastest rate in over three years.

Reddit’s robust revenue growth and increased cost leverage have led to significant profit gains. The company’s revenue grew approximately 4.2 times faster than non-GAAP expenses in 2024, resulting in a substantial increase in adjusted EBITDA margins by approximately 3,150 basis points year-over-year, and achieving GAAP operating income and net income profit in the second half of 2024. Moreover, Reddit generated its first full year of free cash flow (FCF) profit in 2024, amounting to roughly $216 million. InvestingPro data reveals impressive fundamentals, including an 89.25% gross profit margin and a strong current ratio of 11.96, indicating robust operational efficiency and liquidity. For deeper insights into Reddit’s financial health and growth potential, subscribers can access the comprehensive Pro Research Report, available exclusively on InvestingPro.

Looking ahead, JPMorgan anticipates that Reddit will continue to progress in its advertising diversification efforts, delivering strong revenue growth and improved profitability. However, the firm notes that the lack of predictability regarding future Google search changes poses a long-term risk. Reddit aims to further scale its advertiser base, introduce new ad formats and technologies, and work towards its long-term adjusted EBITDA margin target of 40%. InvestingPro analysis shows the company achieved 48.7% revenue growth in the last twelve months, with analysts expecting continued sales growth this year. Discover 14 additional exclusive ProTips and comprehensive financial metrics by subscribing to InvestingPro. JPMorgan has increased its revenue estimates for Reddit by 4-5% for 2025 and 2026, and its adjusted EBITDA estimates by 19-22%. The projected average growth for revenue is 30%, 51% for adjusted EBITDA, and 68% for FCF in 2025 and 2026, which supports Reddit’s premium valuation.

The analyst also highlighted that Reddit’s stock might find near-term support due to its expected inclusion in the MSCI World Index on February 28 (after the market closes). This event could potentially generate a demand for approximately 2.58 million shares, or around 56% of the average daily volume, according to JPMorgan’s Global Quant & Derivatives Strategy (Index) analyst Min Moon.

In other recent news, Reddit has been in the spotlight with several financial firms adjusting their stance on the company’s stock. Jefferies analyst John Colantuoni lowered the price target for Reddit to $225, maintaining a Buy rating due to the company’s success in diversifying its customer base and product offerings. Meanwhile, Raymond (NSE:RYMD) James reaffirmed its Strong Buy rating and $250 price target for Reddit, highlighting the company’s revenue outperformance and promising first-quarter outlook.

Citi analyst Ronald Josey increased the price target for Reddit to $220, reiterating a Buy rating, and emphasized the company’s robust increase in advertising revenue. JMP Securities also raised its price target for Reddit to $200, citing the company’s resilience in search engine optimization and its strong advertising revenue.

Lastly, Goldman Sachs updated its outlook on Reddit, increasing the price target to $185, maintaining a Neutral rating. The firm noted Reddit’s Q4 performance and future guidance revolved around several key points, including the company’s revenue momentum, US Daily Active Users, and positive trend in incremental Adjusted EBITDA margins. These recent developments reflect various perspectives on Reddit’s financial health and future potential.

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