Reddit Rallies On Ad Surge, Global Growth: Analyst Upgrades To Buy

After a blowout first-quarter report and surging ad revenue growth, one analyst upgraded Reddit RDDT, citing strong international momentum, rising logged-in users, and a high-intent commercial audience.

What Happened: Seaport Global analyst Aaron Kessler upgraded Reddit from Neutral to Buy and a $165 price target on Monday.

Also Read: Reddit’s Ad Strategy Is Clicking, Say Analysts—Strong Q1 Sets Stage For Profitable Growth in 2025

Last week, Reddit reported:

Quarterly revenue of $392.36 million. That’s up from $242.96 million year-over-year and topping the analyst consensus estimate of $370.01 million.
Quarterly earnings of 13 cents per share, beating the analyst consensus estimate of two cents.
Total DAUs growth in the high teens through April.
50% growth in the number of advertisers for the quarter.
Over 60 million weekly active users used Reddit’s on-platform search, with query volume increasing 10% sequentially.

Long-Term User Growth

Reddit noted that Alphabet Inc GOOG GOOGL Google search is under “heavy construction” this year and has seen more variability than usual. The decal is more logged-out and more U.S.-centric.

While near-term user growth is likely to decelerate, Kessler remains positive on long-term user growth.

The analyst noted that with increasing logged-in users, Reddit should continue to drive healthy long-term user growth in the U.S.

While AI search answers are gaining popularity, Kessler continues to believe most users will want to research topics more deeply, and Reddit is an alternative to AI answers.

Reddit has also benefited from strong SEO placement, and should Google make more changes that impact them, then traffic could be affected more than his expectations.

Advertising revenues primarily drive the second-quarter revenue growth guidance of 46-53%. Approximately ~40% of Reddit conversations are commercial, providing an attractive user base for advertisers.

Reddit expects continued ad strength, particularly SMB and mid-market. Reddit continues to make substantial progress on its performance marketing initiatives, with 60% of spending now in the mid and lower funnel. Reddit has highlighted its conversions, installs, and progress on DPAs (Dynamic Product Ads).

Kessler noted there remains a significant runway over the next few years.

Reddit’s ad load on its main page is ~1 in 8 posts, compared to closer to 1 in 5 for other leading social platforms. The analyst noted that Reddit has significant room to increase ad load on its core feed and in conversations.

While still early, Kessler noted Reddit’s high commercial intent user base will enable Reddit to capitalize on search long-term.

Reddit also rolled out its first search ML model, which is driving more relevant search results and has built modern search features. Reddit is also integrating Reddit Answers (an AI-powered conversations search tool) into existing surfaces and expects Answers to deliver more dynamic search results and provide a differentiated search experience.

Reddit International Growth

Kessler noted that international growth in users and monetization remains in the early innings. International represents 54% of users and ~20% of revenues as of the first quarter.

The company’s international user growth strength is partly driven by machine translation, now available in 13 languages. Morea are expected this year. Its focus markets — France, Spain, and Brazil — also grow nearly twice as fast as its international DAU.

Reddit also notes that user growth is leading to community growth, with the number of thriving communities within its target geographies more than doubling compared to last year.

While Kessler remains positive on Reddit fundamentals, when he initiated in February, he noted that the shares were fully valued at 18.5 times 2026 revenues at the time.

Kessler projected second-quarter revenue of $420.3 million and EPS of $0.18.

What’s Next: Reddit estimates second-quarter revenue of $410 million-$430 million versus the $385.48 million estimate.

Price Action: RDDT shares are trading higher by 2.39% to $116.56 at last check Monday.

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