Reddit just won earnings season with huge pop. What analysts see from here

Reddit ‘s latest blockbuster results left investors stunned on Tuesday morning. The social media company reported third-quarter earnings of 16 cents per share, whereas analysts polled by LSEG had estimated a loss of 7 cents per share. Reddit’s $348.4 million revenue also beat expectations of $312.8 million. Additionally, Reddit guided for fourth-quarter revenue of between $385 million and $400 million, while analysts had estimated an average of $357.9 million. Adjusted earnings for the current quarter should range between $110 million and $125 million, far exceeding the average estimate of $85.2 million. Shares of Reddit have soared 62% since the company’s initial public offering on March 21. The stock was last trading around 36% higher. RDDT YTD mountain RDDT YTD chart Following Reddit’s results, analysts largely stood by their existing ratings on the stock. Citi analyst Ronald Josey reiterated his buy rating and hiked his target price to $120 from $70. This updated forecast corresponds to a nearly 47% upside for shares of Reddit from Tuesday’s close. Josey wrote that Reddit’s continued user growth and engagement gains have boosted the company — and should continue to do so. “Key here, we believe these trends can continue going forward as newer ad units launch and incremental surfaces — like Search, Video, and Shopping — are monetized as Reddit’s operating leverage continues,” he wrote. On the other hand, analysts from Bank of America, Morgan Stanley and JPMorgan were less bullish on the name and reiterated their equal-weight or neutral-equivalent ratings. JPMorgan analyst Doug Anmuth raised his price target to $110 from $77, while Bank of America analyst Justin Post lifted his target price to $99 from $84. These updated objectives respectively imply that Reddit stock could rise 35% and 21% from its Tuesday close. Morgan Stanley analyst Brian Nowak’s $70 price target is approximately 14% lower than its current level. Post wrote that Reddit’s strong execution in its ad business was encouraging, while its growth outlook remains robust given the social media platform’s growing user base and untapped ads potential. “However, we reiterate our Neutral rating given: 1) premium valuation that factors near-term growth and margin upside, stock over 10x Revenues at AH price), 2) potential user & revenue growth volatility based on historical trends and tougher comps, and 3) tougher revenue comps in 1Q that should slow growth and limit further multiple expansion,” the analyst added. Bernstein was among one of the most bearish firms on the Street, with analyst Mark Shmulik sticking by his underperform rating. Shmulik’s $85 price target, raised from $65, is just 4% higher than the stock’s Tuesday closing price. Shmulik cited Reddit’s expensive valuation as one reason for his bearish outlook. However, the analyst also pointed out Reddit’s potential as an artificial intelligence beneficiary. “The clouds around Reddit have quickly defogged into a real Dr. Jekyll and Mr. Hyde story. Pre-IPO Reddit felt stuck unable to grow users or monetize the platform or viewed as real business — this is Mr. Hyde. But post-IPO Reddit looks like a company that’s suddenly an AI winner, growing ad revenues at an unprecedented clip, has a user growth cheat-code in translation + Google, and hitting years-long profitability targets in months — this Dr. Jekyll,” he wrote. “And right now, Dr. Jekyll is in charge.”