Needham analyst Laura Martin initiated coverage on Reddit Inc (NYSE:RDDT) with a Buy rating and a price target of $55.
Reddit emphasizes the growing value of its extensive library of human conversations for training large language models (LLMs) and brand “social listening,” as per Martin.
The platform’s 18-year collection of daily updated conversations across 1.2 million topics and 7.5 million comments, according to the analyst, positions Reddit as a prime resource for understanding diverse human dialogues and popular expressions.
Alphabet Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) Google’s $200 million deal with Reddit for data access underscores the potential for data licensing revenue, with OpenAI and several Amazon.Com Inc (NASDAQ:AMZN) Amazon Web Services LLMs expected to follow suit due to the indispensable nature of Reddit’s data for LLM development, Martin said.
She stated that Reddit’s unique data offers significant pricing power for GenAI applications by facilitating a nuanced understanding of language evolution and current terminologies.
Unlike alternative sources, Reddit’s real-time human conversations across various topics are irreplaceable, making it an essential asset for LLM training and social listening revenue streams, as per Martin.
Reddit’s primary revenue source is advertising, with the platform achieving scale comparable to other major social networks.
However, the analyst flagged that Reddit differentiates itself with a moderated and community-driven content vetting process, enhancing brand safety for advertisers.
As per Martin, Reddit presents an unrivaled, engaged audience for advertisers, particularly appealing due to its young, balanced demographic and unique user interactions focused on specific interests.
This, combined with Reddit’s strategic expansion into data licensing and social listening, positions the platform for significant growth and monetization opportunities.
Furthermore, despite the challenges, Reddit’s proactive approach to expanding its HBM capacity highlights its commitment to remaining at the forefront of technology and market demand, preparing for future innovations and the next generation of HBM production, Martin added.
Martin projected first-quarter revenue and EPS of $212.0 million and $(0.12).
Goldman Sachs analyst Eric Sheridan initiated coverage of Reddit with a Neutral rating and a $40 price target.
The analyst noted Reddit as positively levered to several long-term secular growth themes within our sector across digital advertising, AI, and the creator economy.
In the current market environment, Sheridan flagged debates around the overall macroeconomic impacts on digital advertising, the pace of budget trajectory, and overall industry competitive dynamics as the biggest potential drivers of volatility in the coming year.
The analyst framed the Reddit business model against three critical debates in the report.
The discussion on Reddit’s ability to compound revenue growth at over 20% is likely based on a large & growing addressable market, Reddit’s US logged-in user growth,h and international user growth & ad monetization, as per the analyst.
The analyst noted the potential for steady margin expansion as Reddit balances targeted investments in long-term growth opportunities against a scaling revenue base and generally high incremental margins.
Concerning Reddit’s ability to scale non-advertising revenue streams, the analyst noted upside optionality around data licensing & the creator economy long-term.
Sheridan projected first-quarter revenue of $210.0 million.