Reddit stock hit a record high Monday following an analyst upgrade. Morgan Stanley turned bullish on the stock, after analyst Brian Nowak wrote that he was "wrong on the sidelines," as Reddit's shares rocketed more than 200% since the company's initial public offering in March.
In a client note early Monday, Nowak upped his call on Reddit stock to overweight from equal weight. He also nearly tripled his price target for the stock, up to 200 from a previous 70.
"We have been wrong on the sidelines with Reddit year-to-date," Nowak wrote. "But as we look ahead to 2025, we don't think we have fully missed this scaling platform that is rapidly shipping its pipeline of engagement and advertising initiatives."
On the stock market today, Reddit stock gained 2.8% to close at 167.28. Shares initially climbed to a record 180.74 before pulling back. Reddit also announced a new generative AI-powered search tool early Monday.
'Still Early' For Reddit, Morgan Stanley Says
Nowak added that it is "still early" for Reddit's platform, with room to grow for user engagement and advertising.
"We see user and time spent per user growing, ad pricing rising (as advertisers pay for improving performance) and upside to ad load as well," Nowak wrote. "This leads to roughly 35% 2024-2027 U.S. ad revenue growth ... which is 2X-6X faster than peers."
Reddit is taking a similar approach to industry leader Meta Platforms, Nowak added, by focusing on core improvements such as using machine learning to better analyze its first-party data and drive stronger engagement.
The risks to that view are competition from Meta, Nowak added, along with Snap, Pinterest and larger ad industry players Alphabet-owned Google and Amazon.com.
Reddit Stock: Up 222% From First-Day Close
Reddit got a positive reception from investors out of the IPO gate. But shares really soared after the company posted 68% sales growth and a surprise profit with its third-quarter results in late October. Reddit stock added 18% in November after it gained 81% in October. Shares were up 16% for December heading into Monday trading.
Analysts have steadily upped their estimates since then. Reddit had an average target price from 19 analysts following the stock of 67.47 at the end of September, according to FactSet. The average target price for Reddit is now 131.50, according to FactSet. Morgan Stanley's new 200 target is the highest overall.
Reddit broke out from a cup-with-handle base buy point of 69.11 on Oct. 4. The stock then gapped up a massive 42% on Oct. 30, after the company's third-quarter earnings report.
Reddit stock is also on the premier IBD 50 list, as well as IBD's IPO Leaders and Tech Leaders lists.
