Morgan Stanley has adjusted its price target for Reddit (RDDT, Financial), raising it from $154 to $170, while maintaining an Overweight rating on the stock. This update comes as the firm revises its outlook across the internet sector, factoring in a supportive macroeconomic environment and reduced tariffs from China. Additionally, Morgan Stanley has updated its valuation approach to anticipate conditions by mid-2026. Although their favored stock remains Amazon, the firm also predicts a rise in revenue growth for both Alphabet and Meta Platforms, with a current preference for Alphabet due to its valuation.
RDDT Key Business Developments
Release Date: May 01, 2025
- Revenue: $392 million, up 61% year-over-year.
- Advertising Revenue: $359 million, up 61% year-over-year.
- Net Income: $26 million.
- Adjusted EBITDA: $115 million, with a margin of 29%.
- Gross Margin: 90.5%, up 190 basis points year-over-year.
- Operating Cash Flow: $128 million, with a margin of 33% of revenue.
- Free Cash Flow: $127 million, 32% of revenue.
- International Revenue Growth: 83% year-over-year, fastest in three years.
- Active Advertisers Growth: Over 50% year-over-year.
- Headcount: Slightly more than 2,300, up 3% sequentially.
- Cash and Investments: $1.95 billion, up over $110 million sequentially.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Reddit Inc (RDDT, Financial) reported a 61% year-over-year increase in revenue, reaching $392 million for Q1 2025.
- The company achieved a 31% year-over-year growth in both weekly and daily active users, with 401 million weekly and 108 million daily users.
- Reddit's advertising business grew by 61% year-over-year, driven by broad-based strength across objectives, channels, verticals, and geographies.
- International ad revenue grew 83% year-over-year, marking the fastest growth rate in three years.
- Reddit's adjusted EBITDA margin reached 29%, with a net income margin of 7%, showcasing strong profitability and financial health.
Negative Points
- The macroeconomic environment remains uncertain, which could impact advertising revenue and user engagement.
- Reddit faces challenges with variability in traffic from external sources, such as search engines, which can affect user growth.
- There is a need to evolve account creation processes to combat fake accounts and bots, which could impact user experience.
- The company is still in the early stages of testing and integrating new ad formats like Dynamic Product Ads, which may take time to scale.
- Reddit's international revenue, while growing, still represents only 20% of the business despite more than half of the audience being outside the US.
