On Wednesday, Jefferies, a global investment banking firm, initiated coverage on the shares of social media platform Reddit (NYSE: RDDT) stock, assigning a Buy rating and setting a price target of $90.00.
The firm's outlook is based on the anticipation of Reddit's EBITDA more than doubling in the upcoming two years, reaching approximately $450 million, which is 12% higher than the consensus for 2026.
The optimism surrounding Reddit's stock stems from the platform's user growth, which is considered to be the highest among its peers. Additionally, there is a potential for Reddit to narrow its monetization gap compared to its competitors.
Jefferies highlighted the social media company's opportunity to forge high-margin data licensing agreements, as the growing applications for Generative AI enhance the value of Reddit's extensive database of contextual content.
The investment firm's price target is derived from two main components of Reddit's business model: $65 per share for Advertising and $25 per share for Data Licensing. This valuation reflects the firm's confidence in Reddit's revenue diversification and its ability to capitalize on its unique data assets.
The current market sentiment for Reddit, as expressed by Jefferies, is bullish, with the company's innovative approach to user engagement and data utilization being key drivers for its future growth. The firm's analysis indicates that Reddit is well-positioned to outperform market expectations and deliver significant shareholder value in the near term.
In other recent news, Reddit has been making significant strides in its financial performance. The company's Q2 revenue surged by 54%, reaching $281.2 million and surpassing analyst estimates of $253.6 million. Additionally, the net loss of Reddit reduced to $10.1 million from $41.1 million a year ago, while the adjusted EBITDA turned positive at $39.5 million.
In recent developments, Reddit announced plans to expand its AI-powered machine translation services to 35 additional countries, a move applauded by Deutsche Bank, which reiterated its Buy rating on Reddit shares. JMP Securities also maintained its Market Outperform rating for Reddit, influenced by the company's recent announcement of machine translation rollout.
Furthermore, B.Riley initiated coverage on Reddit, setting a Buy rating and a price target of $75.00, highlighting Reddit's early monetization phase as a key driver for future growth. Similarly, Piper Sandler revised its outlook on Reddit, raising the stock's price target to $70.00 while maintaining an Overweight rating.
Loop Capital and Needham also reflected positive outlooks on Reddit's performance, with Loop Capital upgrading Reddit's stock from Hold to Buy and Needham raising its price target for Reddit shares to $75. These recent developments highlight Reddit's strong financial performance and promising growth trajectory.
InvestingPro Insights
Recent data from InvestingPro aligns with Jefferies' bullish outlook on Reddit (NYSE: RDDT). The platform's impressive revenue growth of 36.55% over the last twelve months, coupled with a strong 53.63% quarterly revenue growth, underscores its rapid expansion. This growth trajectory supports Jefferies' prediction of Reddit's EBITDA doubling in the next two years.
InvestingPro Tips highlight Reddit's financial health, noting that the company "holds more cash than debt on its balance sheet" and "liquid assets exceed short-term obligations." These factors provide Reddit with financial flexibility to invest in growth initiatives and data licensing opportunities, as mentioned in Jefferies' analysis.
Moreover, the InvestingPro data reveals a gross profit margin of 88.54%, which InvestingPro Tips describe as "impressive gross profit margins." This high profitability in its core operations could contribute to the anticipated EBITDA growth and support Reddit's ability to narrow the monetization gap with competitors.
While Reddit is currently not profitable, InvestingPro Tips indicate that "analysts predict the company will be profitable this year," aligning with Jefferies' positive outlook. The platform's strong market performance is evident in its "large price uptick over the last six months," with a 57.27% price total return over that period.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Reddit, providing a deeper understanding of the company's financial position and market potential.
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