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Wall Street Brokers Start Covering Reddit, Skeptical of User Growth
J.P. Morgan and Morgan Stanley have begun rating Reddit with the equivalent of a "hold" as they await clarity on the social media company's user growth, while remaining bullish on ad revenue growth and artificial intelligence (AI) initiatives. Reddit shares were up 0.88% at $42.64 in pre-panel trading. Although Reddit, which debuted last month, still relies on advertising for the vast majority of its revenue, it touted artificial intelligence as a growth area in its IPO marketing pitch.
Siddarth S reported
(Reuters) - J.P. Morgan and Morgan Stanley have begun coverage of Reddit with the equivalent of a "hold" rating as they await clarity on the social media company's user growth, while remaining bullish on ad revenue growth and artificial intelligence (AI) initiatives. Reddit shares were up 0.88% at $42.64 in pre-panel trading, while the company continues to be bullish on ad revenue growth and artificial intelligence (AI) initiatives.
Although Reddit, which debuted last month, still relies on advertising for the vast majority of its revenue, it touted artificial intelligence as a growth area in its IPO marketing pitch.
J.P. Morgan began coverage of Reddit with a "Neutral" rating and $47 price target, while Morgan Stanley began coverage of Reddit with an "Equal Weight" rating and $45 Morgan Stanley began coverage on Reddit with an "Equal Weight" rating and a $45 price target.
"Growth in DAUq (daily unique active users) has accelerated in recent quarters and there is plenty of room for growth, but for now, Reddit's base of 73 million users is relatively small," said analysts at JPMorgan, led by Doug Anmuth, in a report. But for now, Reddit's base of 73 million users is relatively small.
"The valuation keeps us on the sidelines as we wait for evidence of significant user growth and faster execution," said Morgan Stanley analyst Doug Anmuth.
Morgan Stanley, Goldman Sachs, JPMorgan Chase and Bank of America are among more than a dozen underwriters for the IPO, all of which must wait until mid-April to begin underwriting, in line with industry practice.
Piper Sandler and Roth MKM are most bullish on Reddit, with "Hold" and "Buy" ratings and $50 price targets, respectively.
Piper argues that Reddit is an "iconic Internet asset," while Ross argues that Reddit deserves a premium valuation as it has been called the "front page of the Internet.
Reddit's stock price has fallen below its $47 initial offering price. The San Francisco-based company's IPO was priced at $34, the upper end of its designated price range.
In the "meme-stock" incident of 2021, a group of retail investors acted to purchase shares of highly shorted companies such as GameStop on Reddit's discussion site "wallstreetbets". Reddit's popularity reached new heights.
Earlier this month, two brokerages, Baird and Bernstein, kicked off coverage of Reddit.
(Reported by Siddarth S in Bangalore; Edited by Vijay Kishore)
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