Reddit Inc. (NYSE:RDDT) just got a major thumbs-up from Morgan Stanley, with analyst Brian Nowak upgrading the stock to Overweight and setting a bold $200 price target. This reflects a 23% upside — but the real buzz lies in the potential for an 85% upside under the firm’s bull case scenario.
Nowak didn't mince words: "We think it's still early in RDDT’s best-in-class engagement, monetization, and EBITDA story." This newfound conviction stems from Reddit's aggressive rollout of engagement and advertising initiatives.
According to Nowak, the platform is "rapidly shipping its pipeline of engagement and advertising initiatives," driving outsized user and revenue growth.
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Reddit’s Engagement, Ad Pipelines: The Secret Sauce
Reddit's focus on six engagement initiatives and seven ad innovations sets the stage for explosive growth. The platform's use of machine learning to improve relevance and content discovery has already driven a 20% outperformance in daily active users (DAUs) compared to initial 2024 projections.
Looking forward, Morgan Stanley predicts a 13% CAGR in user growth from 2024 to 2027.
On the advertising side, Reddit's progress mirrors strategies employed by giants like Meta Platforms Inc (NASDAQ:META) and Alphabet Inc‘s (NASDAQ:GOOGL) (NASDAQ:GOOG) Google.
"RDDT’s US ad unit pricing is still 50%+ lower than peers and its US ad load is 40%+ lower," said Nowak, leaving plenty of room for growth. As advertisers adopt Reddit's new automated tools and shopping features, ad revenues could grow at 33% CAGR globally through 2027 — up to six times faster than peers.
Reddit Stock’s Bull Case: $300 Target On The Horizon
Morgan Stanley's bull case envisions Reddit leveraging machine learning and on-platform search to unlock even greater monetization potential. Improved search capabilities could drive higher engagement and pave the way for a search-based ad product by 2026.
Under this scenario, Reddit's EBITDA could soar to $1.4 billion, pushing the stock to a jaw-dropping $300.
Cautionary Notes
Despite the optimism, Nowak acknowledges risks: "Competition remains high" from juggernauts like Meta, Google and Amazon.com Inc (NASDAQ:AMZN). Slower user or revenue growth could also impact valuation, potentially driving the stock to a $105 bear case.
As Reddit sharpens its tools for engagement and advertising, Wall Street will be watching closely. With Morgan Stanley's $200 target in play, the question is: Will Reddit become the next ad-tech titan?
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