Needham maintains Reddit stock Buy rating, $220 target

On Friday, Needham analysts reiterated their Buy rating and $220.00 price target for Reddit (NYSE: RDDT), despite the stock’s significant decline to $108.75 since the company’s earnings release on February 12, 2025. The stock has fallen 15.2% in the past week and 33.5% year-to-date, according to InvestingPro data. The analysts observed a shift in investor sentiment over recent quarters, with a notable evolution in the issues that investors are focused on. According to the firm’s latest research note, there is little overlap in investor concerns quarter over quarter.

Needham’s updated model for Reddit reflects increased profitability estimates for 2025 and 2026, with InvestingPro data showing an expected EPS of $3.61 for 2025 and impressive gross profit margins of 90.5%. Revenue growth projections remain unchanged at 30% year-over-year for both years, building on the company’s strong 61.7% revenue growth in the last twelve months. This growth rate is reported to be the highest among the companies Needham covers. The analysts highlighted the potential for Reddit to reach its ambitious target of 1 billion daily active users (DAUs) and identified several positives driving investor optimism. These include the company’s search revenue upside, video content strategy, international expansion, Generative AI (GenAI) initiatives, developer platform, improving margins, comment ads, shopping ads, and data licensing opportunities.

Conversely, the top concerns among investors include competition from Google (NASDAQ:GOOGL), fluctuating DAU numbers, challenges in data licensing, margin pressures, average revenue per user (ARPU) metrics, data security issues, content moderation, brand safety, macroeconomic factors, and the perception of Reddit’s stock as being expensively valued.

The research note from Needham comes as Reddit navigates a period of intense scrutiny, with the company’s stock price having fallen around 40% since the earnings report. Despite trading at elevated revenue multiples, InvestingPro analysis suggests the stock may be undervalued at current levels, with 5 analysts recently revising their earnings estimates upward. The firm’s analysts have compiled and compared investor sentiments from the first quarter of 2025 with the fourth and second quarters of 2024, as detailed in the appendices of their report. These appendices outline the key debates between bulls and bears during the respective quarters, providing insight into the changing dynamics of investor sentiment toward Reddit. For deeper insights into Reddit’s valuation and 16 additional ProTips, subscribers can access the comprehensive Pro Research Report on the platform.

In other recent news, Reddit has seen a series of adjustments in its stock price targets and ratings from various analyst firms. Piper Sandler raised Reddit’s price target to $220, maintaining an Overweight rating, citing a rebound in user engagement after a dip attributed to fluctuations in Google Search traffic. Meanwhile, Guggenheim reduced its price target to $170 but kept a Buy rating, emphasizing confidence in Reddit’s advertising revenue trajectory and potential user growth. Raymond (NSE:RYMD) James also adjusted its price target downward to $200, while maintaining a Strong Buy rating, highlighting Reddit’s substantial user base and the evolving search and AI landscape.

BofA Securities lifted Reddit’s price target to $190 with a Neutral rating, noting strong results but expressing caution due to a smaller revenue margin than expected and potential reliance on Google. On the other hand, Bernstein SocGen Group maintained an Underperform rating with a price target of $150, pointing to a mixed earnings report and challenges in user engagement. These developments reflect a varied outlook on Reddit’s financial performance and growth prospects in the competitive digital advertising market.

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