On Wednesday, investment firm Needham maintained a bullish outlook on shares of Reddit (NYSE: RDDT), raising the social media company's price target to $190 from the previous $120 while reaffirming a Buy rating.
The upward revision reflects the firm's confidence in Reddit's financial trajectory over the next two years, driven by robust user growth and increasing average revenue per user (ARPU). According to InvestingPro data, Reddit has demonstrated impressive revenue growth of 48.7% in the last twelve months, with 4 analysts recently revising their earnings expectations upward.
The analyst at Needham cited several growth drivers for Reddit, including enhanced revenue from Reddit's search and shopping, as well as higher international revenues. The firm's updated estimates for Reddit now span the fourth quarter of 2024, as well as the full fiscal years of 2025 and 2026. These adjustments are based on the platform's strong performance and the anticipated closing of the ARPU gap between international and U.S. users.
The company maintains impressive gross profit margins of 89.25%, suggesting strong operational efficiency. Based on InvestingPro's Fair Value analysis, Reddit's shares currently appear to be trading above their intrinsic value.
In the commentary accompanying the revised target, the firm highlighted Reddit's inclusion on their Conviction List, indicating a high level of confidence in the stock's potential. The analyst pointed to key areas that are expected to contribute to Reddit's growth in 2025, specifically noting the potential for increased revenue streams.
From a broader perspective, the firm anticipates a more robust market and advertising demand in 2025 compared to 2024, attributing this outlook to an improved business sentiment. The positive macroeconomic forecast aligns with the firm's expectations of Reddit's stronger financial momentum.
Needham's revised price target and continued endorsement of a Buy rating for Reddit shares demonstrate a significant expectation of the company's performance and market position in the coming years. Reddit's strategic focus on user growth and ARPU expansion, particularly in international markets, is seen as a critical factor in the company's ability to capitalize on the anticipated favorable economic conditions.
In other recent news, Reddit has been making significant strides in its financial performance and growth trajectory. The company has reported a remarkable increase in total revenue by 68% and advertising revenue by 56%.
Analyst firms including Loop Capital, Piper Sandler, Citi, B.Riley, and JMP Securities have upgraded their price targets for Reddit, acknowledging the company's strong performance. Loop Capital raised its price target on Reddit shares to $180, maintaining a Buy rating. Piper Sandler adjusted its outlook on Reddit, increasing the price target to $150 while maintaining an Overweight rating on the shares.
Morgan Stanley (NYSE:MS) upgraded Reddit's stock from Equalweight to Overweight and set a new price target of $200. The firm also anticipates a 35% growth in U.S. advertising revenue for Reddit between 2024 and 2027. Baird maintained a Neutral stance on shares of Reddit, but significantly raised the price target to $160 from the previous $100.
However, Reddit recently encountered a major outage affecting thousands of users, following a software bug fix. The company has not yet released a statement regarding the cause of the outage or the measures being taken to resolve the issue. These are recent developments that underscore the positive outlook for Reddit's continued growth and financial success.
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