Reddit, which relies heavily on advertising for revenue, was also touted for its potential growth in AI during its IPO. However, analysts believe the company needs to prove it can scale over time. While some brokerages like Deutsche Bank, Raymond James, Needham, Piper Sandler, and Roth MKM are bullish on the stock, others are waiting for evidence of outsized user growth and faster execution. Reddit's popularity surged during the 2021 "meme-stock" saga, but concerns remain over the company's ability to turn a profit.
Key takeaways:
- Top Wall Street brokerages have expressed doubts over Reddit's user growth, despite being bullish on its ad revenue and use of artificial intelligence.
- Goldman Sachs and J.P.Morgan began with a “neutral” rating and a price target of $40 and $47, respectively, while Morgan Stanley had an “equal-weight” rating and a $45 price target.
- Reddit's user base of 73 million is considered relatively sub-scale, with estimates suggesting it will reach 109 million users by 2026, still lagging behind peers like Facebook and Elon Musk’s X.
- Despite relying heavily on advertising for revenue, Reddit touted AI in its IPO as an area of growth, with its large corpus of user-generated text content being seen as increasingly valuable to AI models.