With an "overweight" rating, Wells Fargo & Company (WFC, Financials) has started covering Reddit Inc. (RDDT, Financials) citing major chances for the social media platform to increase its advertising income. Though the stock performance since its March public offering is impressive, the company thinks the market has not fully appreciated Reddit's potential for near-term monetizing improvements.
With regard to Reddit's user engagement, Wells Fargo believes that around 60% of it is monetizable—that is, excluding time spent on features incompatible with advertising. The company views Reddit's potential to bring fresh ad forms and boost its ad load, therefore improving the platform's attractiveness to advertisers and hence stimulate income development.
The researchers also observed that Reddit's modest dependence on Google search referral traffic—less than 20% of overall traffic—is explained by As Reddit grows, they said it could have to strike a compromise between its data licensing programs and keeping search referral traffic maintained.
Targeting $206 for Reddit, Wells Fargo indicated a possible 32% upside from present levels. The experts think that Reddit's high user involvement and initiatives toward better monetization place it very well in the competitive social media scene.
Reddit said in the third quarter of 2024 that income had increased 68% year over year, coming to $348.4 million. While the "other revenue" category—which includes data licensing—gushed by 547% to $33.2 million, advertising income increased by 56% to $315.1 million.
In the third quarter, Reddit's daily active unique users climbed 47% year over year to 97.2 million. This increase in user involvement improves the platform's appeal to marketers trying to reach a big and engaged audience.
The company's income diversification has come from its data licensing agreements, which include relationships with artificial intelligence companies such OpenAI and Google. These collaborations make advantage of Reddit's vast user-generated content archive, therefore supplying useful information for artificial intelligence model training.
