On Monday, Deutsche Bank adjusted its outlook on Reddit (NYSE: RDDT) shares, increasing the price target to $85 from $73 while reiterating a Buy rating. The revision comes ahead of Reddit's third-quarter earnings report, scheduled for October 29, after the market closes. The stock has seen a significant rise of 60% following its robust second-quarter performance, outpacing the S&P 500's 13% increase.
The analyst noted that the concerns regarding the lock-up expiration have been resolved, and the company's fundamentals appear strong as it enters the earnings report. The positive digital advertising sentiment and the continuation of data licensing agreements are expected to contribute to the company's success.
The projection of approximately 7% quarter-over-quarter revenue growth for the third quarter is deemed very achievable, especially considering the typical seasonal growth patterns.
Reddit's third-quarter revenue is estimated by Deutsche Bank to reach $310 million, indicating a 10% growth from the previous quarter, which aligns with consensus estimates and sits at the upper end of the company's guidance.
However, the market is anticipated to have higher expectations, with predictions ranging from $322 million to $327 million. This would represent a 15%-16% quarter-over-quarter increase, which was the growth rate seen in the second quarter and is considered attainable.
Looking forward to the fourth quarter, which is traditionally strong, the analyst expects continued caution from the company due to concerns over consumer sentiment and the impending Presidential election. Despite these factors, market expectations for fourth-quarter revenue are around $370 million, assuming a 13% growth rate applied to the higher end of third-quarter expectations.
The new price target of $85 is based on a revised multiple of 12 times (up from 10 times) the FY25 enterprise value to gross profit estimate of $1.3 billion, which corresponds to 53 times the FY25 enterprise value to EBITDA estimate of $297 million.
In other recent news, Reddit has seen a surge in Q2 revenue by 54%, reaching $281.2 million, surpassing analyst expectations of $253.6 million. The company's net loss decreased substantially to $10.1 million from $41.1 million a year ago, and the adjusted EBITDA turned positive at $39.5 million.
Investment banking firm Jefferies has initiated coverage on Reddit, projecting a doubling of the company's EBITDA in the next two years, driven primarily by user growth. The firm has set a price target of $90.00 for Reddit's stock, reflecting confidence in the company's revenue diversification and potential to capitalize on its unique data assets.
In addition, Reddit's recent announcement to expand its AI-powered machine translation services to 35 additional countries has been well received by several firms. Deutsche Bank, JMP Securities, and B.Riley have reiterated their Buy ratings on Reddit shares, influenced by this development.
Loop Capital upgraded Reddit's stock from Hold to Buy, while Needham raised its price target for Reddit shares to $75. Piper Sandler also revised its outlook on Reddit, raising the stock's price target to $70.00 while maintaining an Overweight rating. These recent developments highlight Reddit's strong financial performance and promising growth trajectory.
InvestingPro Insights
Reddit's strong market performance, as highlighted in Deutsche Bank's analysis, is further supported by real-time data from InvestingPro. The platform reveals that Reddit holds more cash than debt on its balance sheet, indicating a solid financial position. This aligns with the company's ability to navigate potential economic uncertainties mentioned in the article.
InvestingPro Tips suggest that analysts anticipate sales growth in the current year, which corroborates Deutsche Bank's projections for Reddit's revenue growth in the third and fourth quarters. Additionally, the tip indicating that net income is expected to grow this year supports the overall positive outlook presented in the article.
It is worth noting that Reddit is trading near its 52-week high, which reflects the stock's significant rise of 60% mentioned in the report. This information, combined with the strong returns over various time frames highlighted by InvestingPro, underscores the market's confidence in Reddit's performance and potential.
For investors seeking a more comprehensive analysis, InvestingPro offers 17 additional tips on Reddit, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.