Citi sees upside for Reddit as DAU and ad share grow on new platform capabilities By Investing.com
On Tuesday, Citi reaffirmed its positive stance on Reddit (NYSE:RDDT), maintaining both a Buy rating and a $120.00 price target for the social media company’s shares. The endorsement comes after Citi’s analyst had productive discussions with Reddit’s Chief Operating Officer, Jen Wong, and the Head of Investor Relations, Jesse Rose. The analyst expressed increased optimism regarding the company’s stock, citing a number of factors that could propel Reddit’s continued growth and market presence.
Specifically, the analyst highlighted Reddit’s daily active user (DAU) growth and a series of platform enhancements, including Shreddit, machine learning (ML) advancements, streamlined onboarding processes, improved search functionality, and machine translation services. These improvements are expected to boost user engagement and strengthen the platform’s overall performance.
Additionally, the analyst pointed out that Reddit’s advertising platform is poised to capture more advertising spend. This is attributed to the introduction of more effective performance advertising tools and the upcoming launch of automated ad products. The expectation is that these developments will enable Reddit to increase its share of the advertising market.
Despite the company’s significant investments in growth areas such as sales, machine learning, search, and engineering, the analyst believes that the incremental ad revenue generated from enhanced lower-funnel tools like search, video, and shopping will be sufficient to offset these investments. The result should be an improvement in Reddit’s overall profitability.
In summary, Citi’s reiteration of a Buy rating reflects confidence in Reddit’s strategic initiatives and their potential to drive both user engagement and revenue growth, contributing to the company’s financial success.
In other recent news, Reddit has been in the limelight due to its impressive third-quarter earnings report. Analyst firms have responded positively, with B.Riley, Loop Capital, Piper Sandler, JMP Securities, and JPMorgan all raising their price targets for Reddit.
The company’s third-quarter performance showcased a healthy increase in revenue, largely attributed to a robust core advertising business and significant user growth. Reddit also posted impressive financial achievements, with a 68% increase in total revenue and a 56% rise in advertising revenue. The company’s adjusted EBITDA was reported at $94 million, significantly higher than anticipated.
The company’s strategic initiatives, such as the development of Reddit’s advertising stack and user tools, are expected to further monetize the platform’s user engagement and content. Reddit’s user engagement has seen a significant increase, with total conversation page views rising by 40% year-over-year. The company also reported a notable improvement in profitability, achieving positive GAAP Operating and Net Income for the first time since the fourth quarter of 2023.
These developments highlight Reddit’s strong financial performance and promising growth trajectory. Reddit’s fourth-quarter revenue guidance is set at 10% above the consensus, and the projected adjusted EBITDA margin is forecasted at 30%, compared to a 24% market consensus.
InvestingPro Insights
Reddit’s recent performance aligns with Citi’s optimistic outlook. InvestingPro data reveals that Reddit’s revenue grew by an impressive 67.87% in the most recent quarter, with a 48.7% increase over the last twelve months. This robust growth supports the analyst’s positive view on the company’s ability to capture more advertising spend.
InvestingPro Tips highlight that analysts expect Reddit’s sales to grow further this year, and that net income is projected to improve. These expectations are in line with Citi’s assessment of Reddit’s potential for increased profitability.
The company’s gross profit margin stands at a remarkable 89.25%, which InvestingPro identifies as an impressive figure. This high margin could provide Reddit with the financial flexibility to continue investing in growth areas while improving overall profitability, as suggested in the Citi analysis.
It’s worth noting that InvestingPro offers 17 additional tips for Reddit, providing investors with a more comprehensive analysis of the company’s financial health and market position. These insights could be valuable for those looking to delve deeper into Reddit’s investment potential.
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