The first year as a listed company can be seen as a great success for Reddit. Pessimists have so far been left behind.
• Reddit shares up +250 percent since IPO
• Analysts adjust price targets upwards
• Sales growth and surprise earnings
Reddit priced its shares at $34 as part of its IPO on the NYSE in March – thereby achieving a company valuation of $6.4 billion. Already on the first day of trading it became clear that the $748 million that Reddit was able to raise in fresh capital as a result of the IPO was apparently too low: trading began with an initial price of $47 and the first day of trading ended at $50.50.
Reddit shares have exploded since IPO
Since then, Reddit shares have continued to rise. The share was last traded on the NASDAQ at $163.63; investors had already seen its peak at $177.57 this year. This means that Reddit shares have gained around 248 percent in value since the IPO in March.
Analysts are becoming increasingly bullish
Analysts’ assessments initially looked anything but positive: In particular, the fact that Reddit is not profitable was commented negatively by experts: “In view of tighter liquidity and higher capital costs, investors are increasingly prioritizing companies with strong fundamentals and clear paths to profitability “, warned Thomas Smale, CEO of the M&A consulting company FE International, in the spring against being overly optimistic about the newcomer to the stock market.
In the meantime, the wind – even among experts – has apparently changed: In May, the average price target for Reddit shares rose to $55, according to data from LSEG. According to TipRanks, analysts currently trust the share price on average of $137.24. Although this is well below the current price level, more and more experts have recently adjusted their price targets for Reddit shares upwards. The biggest Reddit bull is Wells Fargo: The US bank has assigned an “overweight” rating and a price target of $206 for the shares.
Reddit’s growth story is convincing
The first quarterly balance sheet that Reddit presented as a listed company justified the increasing optimism on the part of analysts and investors. The loss was lower than expected and sales expectations were significantly beaten.
The share then gained momentum after Reddit announced a partnership with ChatGPT maker OpenAI: Reddit content will be incorporated into the chatbot in the future. “OpenAI will bring Reddit content to ChatGPT and new products, helping users discover and engage in Reddit communities,” it said in announcing the collaboration.
The fact that the social network was able to surprisingly make profits in the third quarter of 2024 silenced numerous other bears. Reddit was also able to beat market expectations on the sales side in the most recently completed reporting quarter, which caused the Reddit share price to almost double overnight. In this context, the strong growth in weekly active individual users was viewed as particularly positive: these rose by 53 percent to 365 million users. Reddit’s total number of daily active users at the end of the third quarter was 97.2 million – up 47 percent year over year.
First expert admits misjudgment
In view of this growth story, which is surprisingly convincing for many, experts have not only reassessed the Reddit share price, one analyst has also explicitly admitted an error in the valuation of the Reddit share. “We made a mistake by staying on the sidelines at Reddit this year so far,” Morgan Stanley analyst Brian Nowak quoted “Investor’s Business Daily.” “But as we look ahead to 2025, we don’t believe we have completely missed out on this scaling platform that is rapidly delivering its pipeline of engagement and advertising initiatives.”
According to Nowak, the hype surrounding Reddit can still be expanded: “It’s still early,” he emphasizes. “We see users and time per user growing, ad prices increasing (as advertisers pay for improved performance), and ad loads also increasing. This will result in U.S. ad revenue growth of approximately 35% between 2024 and 2027 … which is 2 to 6 times faster than comparable companies,” said the expert, referring to competing portals such as Facebook from Mark Zuckerberg’s Meta.
There is no doubt that the first few months of trading for Reddit can be seen as a complete success. Whether the increasing optimism that analysts have shown with regard to the share price is justified will only become clear in the future.
Editorial team finanzen.net
This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.
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