Loop Capital sees more monetization opportunities ahead for Reddit even as the stock trades at an attractive valuation. The investment firm reiterated its buy rating on the social media platform and lifted its price target to $260 from $225. This price forecast implies 83% upside. Shares of Reddit have slipped 11% over the past 12 months and are down 38% on the year. Loop Capital analyst Rob Sanderson said that the stock has been unfairly caught up in the broad-based sell-off sweeping software stocks, presenting an asymmetric upside opportunity. RDDT 1Y mountain RDDT 1Y chart “We see the stock pullback as a highly attractive opportunity to build or add to positions in the growth leader among digital advertising platforms. The sharp pullback in Reddit shares (down 37% YTD vs. the S & P500 up 1%), is not company specific but related to broad-based fears over AI-related stocks in our view,” he wrote. However, as the market corrects this sell-off, Sanderson believes that investors will once again flock to Reddit. “We see a fundamental contradiction in recent market sentiment that AI is driving an infrastructure spending bubble while at the same time enabling a widespread disruption of established technology franchises. We think this dichotomy of concern points to blanket risk-off selling and a near-term dislocation that will prove to be a buying opportunity for AI-related stocks across the board,” he added. “We think Reddit will be among the first places that growth investors will return as risk appetite normalizes.” The analyst pointed to Reddit’s strong advertising revenue growth, which leads its sector. He added that Reddit has the fastest growing advertising business among its peer publicly traded companies, by a high margin. Sanderson also said that user growth remains robust, with other engagement opportunities like conversation pages remain under-monetized. Once search traffic is monetized, he forecasts it providing Reddit a “meaningful boost.” He also highlighted that Reddit has already made meaningful improvements to its search product, such as by integrating AI-powered Reddit Answers. “Search offers some of the highest intent traffic to the industry overall and should be a meaningful monetization opportunity to Reddit. We expect news on a monetization effort in the relative near-term, likely focused on shopping-related queries, and see search becoming an incremental pillar of revenue growth to the company,” the analyst said.
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Wednesday, April 29
