Reddit Stock: BofA Sees 'Big Opportunity Ahead'

Reddit (NYSE: RDDT) shares hit a record high Monday after Morgan Stanley analysts upgraded the stock and highlighted ways the social media platform could grow in 2025. The analysts said they "have been wrong on the sidelines" about the stock's growth since its initial public offering (IPO) earlier this year and lifted their price target to $200 from $70, upgrading the stock to "overweight" from "equal-weight." They noted that Reddit's user base has grown faster than expected, with avenues to continue growing, including a Google partnership directing searches to Reddit links. As Reddit's user base grows and it develops new advertising tools, the platform could become a more attractive advertising destination, the analysts wrote.



Reddit's shares climbed to a record high Monday, reaching $168.00, up over 3% from Friday's close. The stock has been on a tear since its IPO in March, with shares up over 128% year-to-date. The analysts' upgrade comes ahead of Reddit's first-quarter earnings report, scheduled for May 7. BofA said it expects upside to its revenue estimate at $212 million (up 29% y/y), in line with Street estimates. The analysts also raised their estimates for 1Q data licensing revenue to $13 million, primarily from the company's new Google deal.

BofA analysts also expect a 28% y/y jump in daily active users (DAUs) to 77 million, driven by increased user engagement and new features like machine-learning translation. They noted that Sensor Tower data suggests Reddit mobile DAUs increased 20% y/y in 1Q, a 7pt acceleration from 13% in 4Q, as Reddit's relevancy and speed initiatives are driving increased activity.

The analysts boosted their estimates for earnings before interest, taxes, depreciation, and amortization (EBITDA) and revenue in the current quarter "to reflect slightly higher user growth & monetization." They also raised their EBITDA and revenue expectations for 2024 and 2025.

Reddit's stock has been on a rollercoaster ride since its IPO, with shares hitting an all-time high of $179.49 in late April before pulling back. Despite the recent pullback, the stock is still up over 128% year-to-date. The analysts' upgrade and optimism about the company's future prospects suggest that Reddit's stock could continue to rise, especially if the company meets or beats expectations in its upcoming earnings report.