Analysts at Morgan Stanley have identified Reddit's strong engagement and advertising pipeline as key drivers for its future growth. The platform is poised to surpass its peers in user engagement, time spent, and advertising revenue growth.
The brokerage emphasized Reddit's significant investments in six engagement areas and seven advertising innovation initiatives, which are still in early development stages. These investments, alongside advancements in machine learning and ad automation, are expected to yield substantial returns.
Reddit's U.S. daily active users for 2024 have already exceeded initial expectations by 20%, attributed to improvements in content discovery and recommendation through machine learning, streamlined onboarding processes, and increased traffic from Google.
On the advertising front, Reddit is innovating in seven key areas, including ad delivery and performance measurement. Morgan Stanley compared these efforts to Google's Performance Max and Meta's Advantage Plus tools, which have shown measurable gains for advertisers.
Financial projections indicate a 35% annual growth in U.S. ad revenue from 2024 to 2027, more than double the expected growth rates of competitors. By 2027, Reddit's global ad revenue is anticipated to reach approximately $3.1 billion.
Additionally, the firm projects $1 billion in EBITDA by 2026, increasing to $1.4 billion by 2027. The price target has been upgraded to $200, reflecting a 23% upside from current levels.
Morgan Stanley's bullish scenario suggests an 85% upside with a $300 price target, contingent on advancements in machine learning and monetization strategies. On-platform search, with over 1 billion monthly searches, is highlighted as a promising opportunity for engagement and revenue growth.
Reddit's path toward GAAP profitability in early 2025 could position it for inclusion in the S&P 500 index, potentially attracting more investor interest. However, risks remain, including challenges in sustaining user growth and competition from larger platforms like Meta, Google, and Amazon.
Despite these challenges, analysts remain optimistic about Reddit's capacity to leverage its innovative engagement and advertising strategies.