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Reddit (NYSE:RDDT) slipped 5.6% Monday morning, the second-biggest decliner in Communications stocks, as Wall Street shops launched mostly positive coverage of the stock.
With the quiet period expiring following Reddit's March 21 trading debut, Street firms came out mostly bullish on the stock's prospects. After some volatility in the early days, Reddit (RDDT) has settled in close to $40 Monday morning -- above its $34 initial public offering price, but below its trading debut at $47.
The highest new price targets came from Needham and Loop Capital, which target $55 per share, or a rough 38% upside implied.
Needham started the stock at Buy based on a "library of 18 years of human conversations, updated daily" -- which has become increasingly valuable not only for training large language models in artificial intelligence but also as "social listening" for brands.
Alphabet is already paying Reddit $200M over three years for such data, analyst Laura Martin noted. Reddit's the best source for Generative AI info, with 1.2M conversation and 7.5M comments every day; "We also believe that there are few substitutes, which should give RDDT pricing power."
Needham's model sees 22% revenue growth for each of the next two years and "rapidly" expanding margins. Loop Capital, meanwhile, sees a favorable financial model (20%-plus revenue growth, mid-80% gross margins and asset-light) and agrees data licensing to LLMs is a "significant" opportunity.
Raymond James started Reddit (RDDT) at Strong Buy, with a $50 price target. Piper Sandler also started out Overweight at the same target, highlighting data licensing revenue at $66M for 2024 and showing "durability."
Some key names were more measured. J.P. Morgan started out Neutral on Reddit (RDDT), noting a "compelling" narrative with upside potential, but: "We remain on the sidelines as we: 1) look for greater confidence in DAUq trajectory over time; 2) look for greater traction in the highly competitive online ad space; & 3) believe current valuation is healthy at nearly 5x '25E revenue, just ahead of Pinterest (PINS)." The firm has a $47 price target.
Morgan Stanley likes the company's position but also sees valuation putting it at Equal Weight, waiting for "evidence of even faster user/revenue growth." It's got a $45 price target.
And the Street-low target of $40 (implying current fair value) comes from Goldman Sachs. Reddit (RDDT) is "positively levered to several long-term growth themes" -- digital advertising, AI, and the creator economy -- but Goldman sees "debates around overall macroeconomic impacts on digital advertising, the pace/cadence of budget trajectory and overall industry competitive dynamics as being the biggest potential drivers of upside/downside volatility in the coming year."