Reddit Stock Faces Caution from JP Morgan: Strong Fundamentals, But Valuation Concerns Persist

JP Morgan analyst Doug Anmuth maintained a Neutral rating on Reddit, Inc (NYSE: RDDT) with a price target of $77, up from $59.

Anmuth updated Reddit estimates ahead of third-quarter results to reflect recent positive trends.

The analyst noted macro advertising trends are broadly stable and solid, and Reddit continues to make advancements moving down the ad funnel.

He said that Reddit remains focused on driving higher monetization across performance ads (which drove 50%+ of growth in the second quarter), improving ad tech, and scaling new ad surfaces.

Anmuth expects Dynamic Product Ads (DPAs) to ramp through the second half, along with new ad placements on the conversation page, where ~50% of all screen views occur.

The analyst noted that top-of-funnel trends remain healthy, though year-on-year comps grow tougher in the second half and early fiscal 2025.

Reddit is expanding Machine Translation to 35+ new countries (using Gemini and OpenAI), which should support continued quarterly DAU growth.

Overall, the analyst increased his third-quarter revenue to $325 million (up by 57% Y/Y and above the $290 million-$310 million guide) and his adjusted EBITDA to $72 million (22.0% margin and above the $40 million-$60 million guide).

For the fourth quarter, Anmuth projected revenue of $383 million (+53% Y/Y) and adjusted EBITDA of $105 million (27.5% margin).

Anmuth's 2025 & 2026 revenue increased 5%-6% from his previous estimates while EBITDA increased 8%-10%.

After the company's second-quarter earnings report, the analyst emphasized that third-quarter guidance was conservative, likely driven by management concerns about the health of the ad market.

However, Anmuth noted that those fears were driven more by pockets of vertical brand softness that Snap Inc and Pinterest, Inc noted, unlike Reddit during the third quarter.

The analyst noted that overall online ad trends are stable, and Magna raised its 2024 U.S. digital outlook in September to +13.6% Y/Y from +12.9% prior.

Reddit's tone has been upbeat through the third. With the lock-up expiration behind, likely upside to estimates, and potential for new large language model (LLM) data licensing deals, Reddit has become a much more frequent topic of discussion with the investors, as per Anmuth.

However, he noted that the stock price reflects this recent enthusiasm as Reddit is the best-performing name in his coverage year-to-date (for Reddit, since the IPO).

Anmuth recognized that fundamentals appeared strong but remained on the sidelines as he sought greater confidence in the quarterly DAU trajectory over time and more excellent traction in the highly competitive online ad space. He noted that the stock was approaching fair valuation at ~7 times 2026 revenue.

The price target is based on ~32 times his 2026 adjusted EBITDA and ~32 times his 2026 free cash flow, equating to ~7.5 times his 2026 revenue estimate.

Price Action: RDDT stock is down 0.62% at $71.93 at last check Monday.