S&P 500 falls on pressure from retail stocks, weak jobless claims
On Wednesday, Raymond (NSE:RYMD) James made adjustments to its financial outlook for Reddit (NYSE:RDDT), reducing the price target on the company’s shares from $250.00 to $200.00. Despite the adjustment, the firm maintained its Strong Buy rating on the social media platform’s stock. According to InvestingPro data, analyst targets currently range from $150 to $250, with the stock trading at $122.73. The decision comes amid observations of the evolving search and AI landscape, where platforms like Reddit continue to hold significant value due to their unique content offerings.
Josh Beck, the analyst from Raymond James, provided insights into the rationale behind the price target change. He highlighted Reddit’s substantial user base, with more than 500 million monthly active users (MAUs) and top subreddits that boast memberships exceeding 20 million. This massive user base has contributed to impressive revenue growth, with InvestingPro showing a 62% year-over-year increase to $1.3 billion. Beck noted that Reddit’s curated and authentic human discussions are likely to be complemented rather than disrupted by advancements in AI and vertical search technologies. The platform maintains remarkable gross profit margins of 90.5%, demonstrating strong monetization potential.
The analyst also referenced recent industry data, including Google (NASDAQ:GOOGL)’s report of approximately 5 trillion queries per year, translating to about 15 billion a day. This figure contrasts with a previous comment from Microsoft (NASDAQ:MSFT) indicating 10 billion queries. The data suggest a mid-teens compound annual growth rate (CAGR) for search queries over the last few years. Additionally, the rise of ChatGPT, which has achieved around 4 billion monthly visits according to SimilarWeb (NYSE:SMWB), indicates that the market for search and chat functionalities is expanding as consumers increasingly rely on these tools for complex queries.
Beck mentioned that Google has largely maintained its dominant share of the high-80s to low-90s in the search market, despite the growing popularity of alternative search and AI tools. This suggests that the market is growing rather than existing players losing significant ground.
Finally, the analyst addressed Reddit’s unexpected daily active user query (DAUq) miss as a temporary setback. He recalled that since 2022, Google’s search team has structurally endorsed content such as reviews and discussions, which has received favorable user feedback. This endorsement, according to Beck, remains firmly intact, supporting the ongoing value proposition of platforms like Reddit in the broader search and AI market landscape. InvestingPro subscribers can access 16 additional ProTips and comprehensive financial analysis, including detailed valuation metrics and growth forecasts, through the platform’s exclusive Pro Research Report.
In other recent news, Reddit has been the focus of several analyst updates regarding its financial performance and future prospects. Piper Sandler raised Reddit’s price target to $220, maintaining an Overweight rating, citing a rebound in user engagement and an increase in average revenue per user. Despite a shortfall in user growth, the firm remains optimistic about Reddit’s monetization efficiency and potential growth. BofA Securities adjusted its price target for Reddit to $190, up from $180, while maintaining a Neutral rating. The firm acknowledged Reddit’s strong performance but expressed caution due to a smaller-than-expected revenue margin and concerns about user growth.
Bernstein SocGen Group reaffirmed an Underperform rating for Reddit, with a price target held at $150, highlighting challenges in user engagement and competitive pressures in the digital advertising space. Meanwhile, JPMorgan increased Reddit’s price target to $185, maintaining a Neutral rating, noting a slowdown in user growth but recognizing robust advertising revenue growth. Reddit’s revenue growth outpaced non-GAAP expenses, leading to significant profit gains and its first full year of free cash flow profit. Jefferies adjusted Reddit’s price target to $225, down from $230, yet maintained a Buy rating. The firm pointed to Reddit’s success in diversifying its customer base and accelerating advertising revenue, despite concerns over U.S. user growth.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.