Reddit stock gained in early trading Wednesday after analysts with Jefferies initiated coverage of the social media company with a buy rating.
Jefferies estimates Reddit's earnings before interest, taxes, depreciation, and amortization will more than double in the next two years, to roughly $450 million, analyst John Colantuoni said in a client note.
The gains will be driven by "peer-high growth in users and a nascent opportunity to close the monetization gap to peers," the note said.
Jefferies "also anticipate(s) additional high-margin data licensing deals as expanding use-cases for Gen AI increase the value of Reddit's database of contextual content," Colantuoni added.
Jefferies set a price target of $90 for Reddit stock. Jefferies values Reddit's advertising business at $65 per share and its data-licensing business at $25 per share.
On the stock market today, Reddit stock is up more than 3% at 73.20 in premarket trades. Shares on Friday broke out above a 69.11 cup-with-handle buy point, as identified by IBD MarketSurge.
Reddit Stock: Accelerating User Growth
Reddit has benefited from deeper integration into Google search, the Jefferies note said.
"Reddit is combining AI-driven product enhancements with a robust archive of contextual content to spur trial and engagement, resulting in recent user growth accelerating to the highest level in 2+ years," the note added.
Reddit's large library of user content is valuable to developers of AI algorithms. Reddit has already reached deals with Alphabet and OpenAI to license its content.
"We believe expanding use-cases for Gen AI over time will attract new partnerships, resulting in additional high margin revenue streams and upside to consensus," the Jefferies note said.
The 19-year-old Reddit completed it initial public offering in March. Since then, shares have nearly doubled from Reddit's listing price of 34. Reddit was IBD's Stock of the Day on Friday.
In other Reddit news, the White House launched an account this week. The account will provide updates on Hurricane Milton, as well as the recovery process from Hurricane Helene.
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