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Investing.com -- Truist Securities initiated coverage of Reddit Inc (NYSE:RDDT) with a Buy rating and a price target of $150 citing the company’s rapid growth trajectory, margin expansion potential, and differentiated position in the digital advertising space.
Reddit is rapidly growing social media platforms, with a compelling combination of user engagement, under-monetized assets, and long-term margin leverage. Reddit ended 2024 with 102 million daily active users (DAUs), up 39% year-over-year, and aims to eventually reach 1 billion DAUs globally.
Truist sees Reddit’s revenue nearly doubling to $2.9 billion by 2027, supported by ongoing digital ad share gains and monetization tailwinds.
The company generated $1.3 billion in revenue in FY24, representing less than 1% of the global digital ad market, giving it ample room to grow.
With recent profitability milestones, 22% adjusted EBITDA margin and positive free cash flow, Truist expects long-term margins could reach about 50%.
Reddit's high-intent, topic-specific communities give it an edge in an era of heightened privacy concerns, the note added.
As cookie-based targeting declines, the platform’s context-driven ad model and granular subreddit structure offer valuable targeting signals for advertisers.
Truist also highlighted Reddit’s emerging search product and expanding AI capabilities as additional revenue drivers.
The company is expected to roll out a new commercial search tool next year, leveraging two decades of user data and generative AI to drive deeper monetization.
Reddit offers a unique mix of content depth and consumer insight, which advertisers increasingly value in a post-cookie world, as per the analysts
Truist values Reddit at 8x EV/sales and 23x EV/AEBITDA on FY25 estimates, pointing to a 7-year revenue CAGR of ~18%. Key risks to the bullish view include regulatory shifts, macroeconomic pressure, platform execution, and rising competition.
Shares of Reddit, which went public in March, have rallied since the IPO as investors bet on the company’s ability to scale advertising and capitalize on its loyal, high-engagement user base.