Morgan Stanley analysts upgraded Reddit’s stock to “overweight,” citing significant growth potential that has resulted in the company reaching a record share price. The upgrade is expected to bolster investor confidence and expand Reddit’s market presence.
Morgan Stanley upgrades Reddit’s stock, foresees growth potential
Analyst Brian Nowak acknowledged missing the initial surge of Reddit’s stock post-IPO, yet emphasized that opportunities remain in the company’s robust engagement and advertising initiatives as it looks ahead to 2025 according to a Yahoo! Finance report. He raised the price target for Reddit’s shares from $70 to $200, signifying a projected 23% gain from its recent trading close of $167.17. Nowak stated, “We have been wrong on the sidelines with Reddit year-to-date,” indicating a newfound optimism in the platform’s capabilities to capitalize on its current momentum.
Reddit’s shares surged by 81% in October, largely due to surpassing expectations in its results and forecasts. This rise has contributed to a staggering 400% increase since the stock began trading at $34 per share in March 2024. The analysts believe that Reddit’s aggressive advancement of engagement tools and advertising capabilities will further enhance user growth and retention.
In particular, Reddit’s daily active users have increased approximately 20% faster than Morgan Stanley anticipated. The analysts noted that a recent partnership with Google aims to direct additional user traffic to Reddit, enhancing accessibility and visibility. As the user base expands, the platform is expected to attract more advertising dollars, potentially aligning its ad pricing with larger competitors like Google and Meta.
Analysts highlight growth avenues for Reddit
Morgan Stanley’s analysts outline several “multiple levers” that could facilitate substantial growth for Reddit in 2025. Improved search functionality and new initiatives, such as the trial run of “Reddit Answers,” are designed to enhance the user experience. The AI-powered tool will summarize relevant threads and highlight popular replies, making it easier for users to glean insights quickly.
Additionally, Reddit is in the process of launching advanced advertising products that incorporate automation and AI features, providing advertisers with innovative options to reach audiences more effectively. This enhanced capability could make Reddit a more viable competitor in the digital advertising landscape.
The analysts urge investors to consider the overall trajectory of Reddit as it continues to evolve its monetization strategies. As the company pushes to create a more attractive platform for advertisers, it is still unclear how swiftly it can translate user growth into revenue.
As of Monday, shares were reported to have increased by 2.7%, suggesting a growing investor appetite even amidst cautious market trends.
While Morgan Stanley may have shifted its position on Reddit, the overall environment remains dynamic. Many observers await additional updates regarding Reddit’s user engagement metrics, particularly how well the company can sustain its growth trajectory following the post-IPO surge. Continued assessments from financial experts will contribute to a clearer picture of Reddit’s potential.
Featured image credit: Reddit
