Reddit (NYSE: RDDT) has faced considerable volatility since its IPO in March 2024, fueled by its “meme stock” status. However, it has recently surged nearly 240% year-to-date, capturing significant investor attention.
The stock has captured the spotlight once again after Piper Sandler analyst Thomas Champion raised the company’s price target from $115 to $150, driven by robust advertising metrics and accelerating user growth in October.
Notably, Reddit’s stock has already surpassed the updated price target, closing at $158.02 on November 21.
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At press time, the stock continues to trade at $158.02, boasting a 15% gain in just one day and an impressive 104% rally over the past month. However, in after-hours trading, the stock dipped to $149.
Robust user growth but sustainability in question
Reddit’s upward momentum has been fueled by impressive user growth. Earlier this week, Thomas Champion, a Piper Sandler analyst, raised Reddit’s price target to $150 from $115, maintaining an Overweight rating.
The upgrade reflects October’s accelerating monthly active user growth of 3.5%, up from 1% in September, and a remarkable 47% year-over-year surge in daily active users, which reached 97 million last quarter.
The analyst highlighted Reddit’s organic user acquisition trends, driven by the platform’s prominence in Google search results. CEO Steve Huffman revealed that Reddit ranks as the sixth most Googled phrase in the U.S. this year, further underscoring the platform’s growing appeal.
However, recent changes by Google (NASDAQ: GOOGL) to monetize searches for “Reddit” by placing paid links above organic results could impact the platform’s user acquisition funnel.
While this poses a potential risk, Piper Sandler noted no immediate impact on Reddit’s metrics, affirming confidence in its organic growth engine. The firm raised its fiscal 2025 revenue forecast by 5% to $1.75 billion, driven by a projected 9% annual increase in average revenue per user in 2025 and 2026, up from earlier estimates of 7%.
Shareholder moves add uncertainty amid growth momentum
Despite the bullish outlook, Reddit shares dropped over 7% in after-hours trading following the announcement of a $1.2 billion stock sale by major shareholder Advance Magazine Publishers.
This overshadowed Thursday’s impressive 15% intraday surge, fueled by the analyst upgrade and the resolution of a widespread platform outage.
The proposed sale involves 7.8 million shares priced between $145.38 and $148.54, raising concerns about short-term market stability.
However, Advance’s strategy to maintain its stake through derivative purchases indicates continued confidence in Reddit’s long-term potential.
The timing of the sale, occurring just days after Reddit’s substantial rally, adds complexity to the stock’s outlook.
While recent gains reflect growing optimism about the platform’s operational success, the shareholder sell-off introduces a layer of uncertainty, forcing investors to weigh strong fundamentals against the potential impact of equity dilution.
For investors, Reddit represents both the promise of sustained growth and the realities of navigating the pressures of key stakeholder decisions.
Moving forward, the platform’s ability to maintain its growth momentum while addressing near-term uncertainties will be critical in shaping its long-term success.
Featured image via Shutterstock
