Reddit (RDDT) PT Raised to $185 at JPMorgan
JPMorgan analyst Doug Anmuth raised the price target on Reddit (NYSE: RDDT) to $185.00 (from $142.00) while maintaining a Neutral rating.
The analyst comments "RDDT shares traded down -13% post-close driven by slower than expected DAUq growth & a slightly softer than expected 1Q revenue outlook, albeit against high expectations. We believe DAUq growth softened after Thanksgiving — primarily across US logged-out users — driven by the Google search algo change (Google ~40-50% of RDDT’s traffic), crawling issues that impacted Google’s ability to scrape data which drove RDDT’s rankings lower, & typically softer holiday seasonality. However, search traffic headwinds did not impact logged in user growth or 4Q revenue, & the company believes 1QTD search traffic has recovered. Despite DAUq headwinds, Reddit continues to execute well & capture share of advertiser budgets. Reddit believes the ad market backdrop is healthier, & Ad revenue growth accelerated to +60% Y/Y in 4Q (vs. +56% Y/Y in 3Q) driven by full funnel strength, w/10 of RDDT’s top 15 verticals growing 50%+. Performance ads drove more than half of 4Q growth & accounted for ~60% of total ad revenue, while top of funnel revenue grew at the fastest rate in over 3 years. Strong revenue growth & increased cost leverage have supported strong profit gains, w/RDDT growing revenue ~4.2x faster than non-GAAP Expenses in 2024, expanding ’24 Adj. EBITDA margins +3,150bps Y/Y (~74% incrementals), delivering GAAP OI & NI profit in 2H24, & generating its 1st full-year of FCF profit in 2024 (~$216M). We expect Reddit to continue making progress across its full-funnel diversification while delivering strong revenue growth & improved profitability, but lack of visibility into future Google search changes remains a L-T risk. We look for continued execution across advertiser scale, new ad formats/tech (Search, Conversation Ads, Shopping Ads), & progress toward mgmt’s 40% L-T Adj. EBITDA margin target. Our 2025 & 2026 Revenue estimates increase 4-5% each & our Adj. EBITDA estimates increase 19-22%. We project average 2025 & 2026 growth of +30% for revenue, +51% for Adj. EBITDA,& +68% for FCF, which we believe supports RDDT’s premium valuation. We remain Neutral and increase our December 2025 PT to $185 based on ~56x 2026E Adj. EBITDA of $666M & ~64.5x 2026E FCF of $576M. More near-term , RDDT shares could see support from inclusion in the MSCI World Index on 2/28 (post close), with demand of ~2.58M shares, or ~56% of average daily volume according to JPM Global Quant & Derivatives Strategy (Index) analyst Min Moon."