What Happened?
Shares of online community and discussion platform Reddit (NYSE:RDDT) jumped 11.1% in the morning session after Morgan Stanley analyst Brian Nowak upgraded the stock's rating from Equal Weight (Hold) to Overweight (Buy), citing the potential for platform engagement and the advertising pipeline to accelerate growth. The analyst is projecting U.S. ad revenue growth of approximately 35% from 2024 to 2027, which would outpace peers by 2x-6x. Nowak pointed to specific growth drivers, including rapid improvements in engagement features, advanced ad tools, and machine learning innovations. These factors underpin his $200 price target, representing a potential 23% gain, and a bullish scenario of $300, implying an 85% upside.
After the initial pop the shares cooled down to $165.95, up 2% from previous close.
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What The Market Is Telling Us
Reddit’s shares are extremely volatile and have had 45 moves greater than 5% over the last year. But moves this big are rare even for Reddit and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 17 days ago when the stock dropped 8.9% after Bloomberg reported that shareholder Advance Magazine Publishers (the parent company of Conde Nast, which owns brands like GQ and Vanity Fair) is planning to sell up to 7.8 million of its Reddit shares at a discounted price. The sale is expected to fetch Advance Magazine Publishers roughly $1.2 billion, which translates to a high single-digit discount relative to the stock's closing price on November 21, 2024 (a day before news of the sale was reported).
Separately, the company plans to buy derivatives to offset the sale and enable it to maintain its stake in Reddit as part of a credit facility. The stock's reaction suggests markets expect the sale to depress Reddit's share price at least in the short term.
Separately, China's Tencent Holdings disclosed in a regulatory filing that it sold a portion of its Reddit shares. The recent sale reduced Tencent's ownership in Reddit to 7.7m shares, down from 10.7m earlier in the month.
Reddit is up 229% since the beginning of the year, and at $165.95 per share, has set a new 52-week high. Investors who bought $1,000 worth of Reddit’s shares at the IPO in March 2024 would now be looking at an investment worth $3,290.
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