Bernstein upgrades Reddit, says it’s ’executing under the cloud of unknowns’

Investing.com -- Bernstein upgraded Reddit to Market-Perform from Underperform in a note this week, pointing to strong execution despite lingering uncertainties around user growth and platform monetization. The firm also raised its price target for the stock to $130 from $110.

“We’re tired of getting it wrong on Reddit,” Bernstein analysts wrote.

While long-term concerns are said to remain, including Reddit’s reliance on Google (NASDAQ: GOOGL) and the monetization ceiling for smaller social platforms, Bernstein said it was encouraged by the company’s performance.

“In an unnerved market, Reddit is quietly going about their business, too small to be heavily exposed to macro swings while broadening out their advertiser base,” the analysts said.

Reddit’s first-quarter revenue rose 61% year over year to $392 million, surpassing expectations, with ad revenue also growing 61%. Direct response advertising now represents about 60% of total ad dollars.

Reddit’s engagement data is said to have offered mixed signals. Bernstein notes that global daily active users qualified (DAUq) rose 31% year over year to 108 million, slightly above consensus.

However, quarter-to-date commentary suggests flat sequential growth, with the U.S. once again lagging.

Still, Bernstein acknowledged that management said user growth was driven mostly by direct traffic rather than Google, which “perhaps helps to de-risk the story.”

Profitability is also improving. Adjusted EBITDA hit $115 million, representing a 29% margin, well above analyst expectations. Reddit reiterated its goal of growing revenue at twice the pace of expenses, leading Bernstein to see a “pathway to $1B+ Adj EBITDA in 2026.”

“Reddit has now set the DAU bar lower for the quarter,” Bernstein added. However, with strong revenue guidance and improving margins, the firm said it was time to “move to the sidelines” and lifted its rating accordingly.

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