Wall Street firms are in wait-and-see mode for recent IPO stock Reddit. JPMorgan, for one, initiated coverage of Reddit stock Monday with a neutral call, saying the social media firm's base of users is "subscale" compared with top digital advertising players.
Reddit went public last month, with shares soaring on the day of its initial public offering. But the stock has mostly slumped since. The note from JPMorgan was among a batch of new analyst calls for San Francisco-based Reddit on Monday. The notes come following a customary quiet period for firms that participated in Reddit's public offering.
Morgan Stanley also initiated coverage with a neutral view of Reddit. However, Piper Sandler and Needham were among the brokerages that initiated the social media player with a positive rating.
On the stock market today, Reddit stock slumped 5.4% to close at 40.01.
Reddit's Ad Positioning, AI Revenue In Focus
JPMorgan analyst Doug Anmuth set a price target of 47 for Reddit shares along with his neutral outlook. On the positive side, he told clients, Reddit has a differentiated "digital city" of more than 100,000 dedicated subreddits and is early in monetizing that interest.
But, he added, "Reddit's base of 73 (million) users is relatively subscale." Smaller digital ad platforms have historically struggled to compete with Alphabet's Google and Facebook parent company Meta, Anmuth wrote.
On the other hand, Piper Sandler provided one of the more bullish initiations on the stock, with a positive overweight call and a price target of 50.
"We view RDDT as an iconic internet asset likely to grow users and revenues rapidly in coming years," analyst Tom Champion wrote. "In advertising, reaching peer monetization levels should drive top-line growth. New revenue streams will also contribute."
That includes Reddit's plan to license the data across its forums to train artificial intelligence models. Reddit struck a deal allowing Google to use its data for AI earlier this year. Piper Sandler is forecasting 22% revenue growth for Reddit in 2024, to $980 million. It said AI licensing could provide upside to that forecast.
Reddit Stock: Up 24% From Offering Price
Reddit stock surged as much as 70% beyond its 34 offering price when it began trading on the New York Stock Exchange on March 21. But it has mostly lost ground since. Shares closed trading below Reddit's eventual listing price of 44 on Monday.
Reddit last year had sales of $804 million, up 21% from 2022. But the company lost about $91 million in 2023 and has yet to turn a profit.
Earlier this month, Bernstein analyst Mark Shmulik initiated Reddit with an underperform rating and 40 price rating. Shmulik said Reddit's "longer term promises — grow the ad base, profits just around the corner, and the dream of all the non-ad upside — are promises we've heard too many times."
Reddit plans to report quarterly results for the first time as a public company on May 7.
