Equities

Reddit IPO Up 24%, Goldman & JPMorgan Issue Neutral Ratings

Wall Street divided on Reddit's future with JPMorgan and Goldman cautious, while Citi and Deutsche Bank see up to 25% upside.

By Athena Xu

4/15, 13:20 EDT
Citigroup, Inc.
Deutsche Bank AG
Goldman Sachs Group, Inc.
JP Morgan Chase & Co.
Morgan Stanley
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Key Takeaway

  • Reddit's IPO sees a 24% gain from its initial price, despite mixed Wall Street ratings and a 10% loss for some investors.
  • Major firms like JPMorgan and Goldman Sachs issue neutral ratings, citing concerns over near-term challenges in digital advertising.
  • Citi and Deutsche Bank are optimistic, highlighting Reddit's engagement trends and monetization efforts with targets up to $53.

Wall Street's Mixed Outlook on Reddit

Since its stock market debut on March 21, Reddit has experienced a notable 24% gain from its initial offering price of $34 a share, closing at $50.44 after a 48% pop on its first day. Despite this strong start, the stock opened at $47 a share, indicating a 10% loss for investors who bought in at that price. Major Wall Street firms have initiated coverage of Reddit with a range of perspectives, reflecting the diverse expectations for the company's future performance in the stock market.

Neutral and Cautious Ratings

JPMorgan analyst Doug Anmuth has adopted a neutral stance, setting a price target of $47 with an anticipated 11% upside from Friday, citing the need to monitor Reddit's progress in the online advertising space closely. Similarly, Goldman Sachs and Morgan Stanley have issued neutral and equal-weight ratings, respectively, with concerns about near-term obstacles that could dampen the impact of long-term growth themes such as artificial intelligence, digital advertising, and the creator economy. Goldman's Eric Sheridan highlighted potential volatility driven by macroeconomic impacts on digital advertising and competitive dynamics, setting a 12-month price target of $40, suggesting a possible 5% decline. Morgan Stanley's Brian Nowak set a slightly more optimistic target of $45, indicating a potential 6.5% gain, but emphasized the importance of waiting for evidence of significant user growth or faster execution.

Optimistic Views from Citi and Deutsche Bank

Contrasting with the more cautious outlooks, Citi and Deutsche Bank have expressed more optimistic views on Reddit's near-term prospects. Citi analyst Ronald Josey set a price target of $53, forecasting a 25% upside and highlighting Reddit's improving engagement trends, monetization efforts, expanding margins, and data licensing opportunities as key catalysts. Deutsche Bank's Benjamin Black also pointed to positive inflections in top-of-funnel growth, early-stage ad platform development, nascent data licensing business growth, and a period of cost harvesting after significant headcount additions, setting a price target of $50 for an 18% gain.

Street Views

  • Doug Anmuth, JPMorgan (Neutral on Reddit):

    "We recognize that there is likely upside to near-term numbers, but we remain on the sidelines."

  • Eric Sheridan, Goldman Sachs (Neutral on Reddit):

    "In the current market environment, we see debates around overall macroeconomic impacts on digital advertising, the pace/cadence of budget trajectory and overall industry competitive dynamics as being the biggest potential drivers of upside/downside volatility in the coming year."

  • Brian Nowak, Morgan Stanley (Neutral on Reddit):

    "Valuation leaves us on the sidelines as we wait for evidence of outsized user growth and/or faster execution."

  • Ronald Josey, Citi (Bullish on Reddit):

    "We acknowledge the potential risks around some of Reddit’s content and that it remains earlier-on in its ads monetization journey, but we also believe that is the opportunity as Reddit expands its advertiser base and launches newer ad units around Shopping, Video, and Search."

  • Benjamin Black, Deutsche Bank (Bullish on Reddit):

    "We think Reddit is on the early end of a number of positive inflections: Top-of-funnel growth is accelerating, the ad platform is in the early stages of being built to address lower funnel objectives, the data licensing business is in very early stages of growth..."