Analysts at Bank of America have raised their price target for Reddit (NYSE:RDDT) after the social media platform delivered a strong third quarter earnings report and upbeat outlook.
The analysts raised their price objective to $99 from $84 on its upwardly revised forward estimates which reflect higher ad revenue offset by slightly lower data revenue.
For 2025, the bank's analysts raised their revenue forecast by 10% to $1.7 billion and their EBITDA forecast by $101 million to $435 million.
They expect ad revenue of $1.5 billion, marking a 30% year-over-year increase, and data revenue of $175 million, a 48% increase.
For Q3, Reddit (NYSE:RDDT)’s revenue and EBITDA comfortably beat Street estimates on strong momentum in its ad business. Revenue was $384 million and EBITDA was $94 million, topping estimates of $310 million and $58 million, respectively.
Analysts noted a range of direct response advertising initiatives that drove a greater than 100% year-over-year growth in small and medium business ad spend during Q3.
This included the launch of multi-placement optimization, the expansion of Customer API integration partnerships, and redesigned Conversion Ads that improved click-through rates by double digits.
Management also indicated that Reddit (NYSE:RDDT) is experimenting with ads in user comment sections and plans to improve its search function, followed by introducing ads in search results.
“We are encouraged to see another quarter of strong execution in the ad business and the growth outlook remains strong for Reddit given a rapidly growing user base and untapped assets for ads (comments, search and video),” analysts wrote.
However, they noted that they have reiterated their ‘Neutral’ rating on the stock as its premium valuation already factors in near-term growth and margin potential, with shares trading over ten times revenue afterhours on Tuesday.
Additionally, analysts believe user and revenue growth could be volatile based on historical trends and tougher comparisons, while expected revenue challenges in the first quarter may slow growth and limit further valuation expansion.