With the recent blockbuster IPO of Reddit, the social media platform, investors and analysts are revisiting their outlook on the stock. Bank of America (BofA), a prominent player in the financial sector, is among those closely scrutinizing Reddit's trajectory post-initial public offering, raising its target for the company’s shares in a note Monday.
Reddit IPO
Reddit went public in a much-anticipated initial public offering (IPO) on March 21, 2024.
The social media company priced its shares at $34 per share, the top of its expected range. This valued Reddit at roughly $6.5 billion, though it fell short of its $10 billion valuation in 2021.
Despite this, the IPO was seen as a success, with Reddit raising around $750 million and its stock price surging on its debut day. This strong performance was seen as a positive sign for the industry.
Over the last month, Reddit shares have risen just over 5%. They are currently trading at above $48 per share after dropping to a low of $37.35 in April.
BofA raises target on Reddit stock
In a note to clients this week, analysts at Bank of America raised the price target for Reddit to $50 from $45 per share, maintaining the rating at Neutral.
The bank said that with the company reporting earnings on May 7, they see an opportunity for upside compared to Wall Street estimates.
“We expect upside to our revenue est. at $212mn (up 29% y/y), in line with Street,” said BofA. “Our est. has ad revenues of $199mn, up 21% y/y, a 4pts q/q deceleration on 1pt easier y/y comp. With Snap 1Q ad rev. accelerating 14pts (on 9pt easier comp) & Pinterest (NYSE:PINS) 11pts q/q (on 1pt tougher comp), we expect upside.”
Furthermore, the firm estimates $13 million in 1Q data licensing revenue, primarily from the company’s new Google (NASDAQ:GOOGL) deal. For users, they forecast 77 million daily active users (DAUs), up 28% year-on-year and accelerating 1pt quarter-on-quarter.
“Sensor Tower data suggests Reddit mobile DAUs increased 20% y/y in 1Q, a 7pt acceleration from 13% in 4Q as Reddit's relevancy & speed initiatives are driving increased activity,” notes BofA.
According to BofA, the most important drivers of post-call stock performance will be the second-quarter revenue and the platform’s user outlook. Nevertheless, they expect a positive tone on user trends and ad platform progress. However, they note the risk of high expectations given peer results.