Reddit Stock Hits Record High After Upgrade From Morgan Stanley on Its Growth Potential

Reddit, the popular social media platform, has seen its stock price reach an all-time high following an upgrade from Morgan Stanley. The investment bank raised its rating on Reddit to "Overweight" and set a price target of $200, reflecting a 23% upside. This upgrade comes on the heels of Reddit's impressive third-quarter earnings report, which showed strong user growth and revenue increases.

Reddit's stock price has been on a tear in recent months, driven by a combination of factors. The company's aggressive rollout of engagement and advertising initiatives has led to outsized user and revenue growth. Morgan Stanley analyst Brian Nowak highlighted Reddit's focus on six engagement initiatives and seven ad innovations as key drivers of this growth. The platform's use of machine learning to improve relevance and content discovery has already driven a 20% outperformance in daily active users (DAUs) compared to initial 2024 projections.

Looking forward, Morgan Stanley predicts a 13% compound annual growth rate (CAGR) in user growth from 2024 to 2027. On the advertising side, Reddit's progress mirrors strategies employed by giants like Meta Platforms Inc (META) and Alphabet Inc (GOOGL). With US ad unit pricing still 50%+ lower than peers and US ad load 40%+ lower, there is significant room for growth. As advertisers adopt Reddit's new automated tools and shopping features, ad revenues could grow at a 33% CAGR globally through 2027, up to six times faster than peers.



Under Morgan Stanley's bull case scenario, Reddit could leverage machine learning and on-platform search to unlock even greater monetization potential. Improved search capabilities could drive higher engagement and pave the way for a search-based ad product by 2026. In this scenario, Reddit's earnings before interest, taxes, depreciation, and amortization (EBITDA) could soar to $1.4 billion, pushing the stock to a jaw-dropping $300.

However, Nowak acknowledges risks such as high competition from juggernauts like Meta, Google, and Amazon.com Inc (AMZN). Slower user or revenue growth could also impact valuation, potentially driving the stock to a $105 bear case. As Reddit sharpens its tools for engagement and advertising, Wall Street will be watching closely to see if the company can maintain its momentum and deliver on its growth potential.



In conclusion, Reddit's stock price surge following Morgan Stanley's upgrade reflects the investment bank's confidence in the company's growth potential. With a focus on engagement and advertising initiatives, Reddit is well-positioned to capitalize on its user base and drive revenue growth. As the company continues to innovate and adapt, investors will be eager to see if Reddit can maintain its momentum and deliver on its promise of outsized growth.