Jefferies has initiated coverage on Reddit (NYSE:RDDT), citing the platform’s impressive user growth, particularly after integrating AI-driven enhancements and improving its platform speed.
Analysts initiated coverage with a "Buy" rating and a $90 price target, which implies a 28% upside from the current price.
Jefferies analysts highlighted that user growth accelerated to the highest level in over two years, with user engagement seeing a notable boost—51% in Q2 2024 alone.
A key aspect of Jefferies' analysis is Reddit (NYSE:RDDT)’s monetization potential. The analysts point out that Reddit (NYSE:RDDT)’s revenue per user (ARPU) is significantly lower compared to competitors like Pinterest and Snapchat, but this gap presents a "long runway for increased monetization."
Jefferies believes that innovations in ad formats, increased ad loads, and new partnerships will lead to sustainable 20%+ revenue growth through 2027.
Additionally, Reddit’s vast database of user-generated content has made it an attractive partner for developers of generative AI models, leading to lucrative data licensing agreements with companies like Google and OpenAI. Jefferies expects further partnerships with other AI players like Amazon and Anthropic, driving additional high-margin revenue.
Analysts belive that the upside potential in advertising and data licensing could lead to a 50% EBITDA growth rate over the next three years.
Shares of Reddit traded around 1.7% higher at $71.96 by midafternoon Wednesday.