Reddit’s stock has experienced significant fluctuations this October, prompting analysts to weigh in on its future. Earlier this month, shares dipped due to concerns over decreased web traffic referrals from AI chatbots. Despite a recent uptick, the stock remains below its 50-day moving average and has dropped 12% this month.
Analyst Insights on Reddit Stock
Youssef Squali, an analyst at Truist, provided an optimistic outlook in a client note on Wednesday. He anticipates a strong earnings report for the third quarter, set to be released on October 30, which he believes may exceed current expectations.
Exciting Developments Ahead
Several factors could contribute to a recovery in Reddit’s stock. Squali highlighted a strategic plan by Reddit to unify its search function and the introduction of a generative AI-driven Answers feature. He noted:
- Reddit’s unified search is expected to benefit from the growing interest in generative AI.
- The platform boasts 70 million weekly users for its core search product.
- Its generative AI Answers feature has gained 6 million weekly active users as of June 30.
Squali reiterated a “buy” rating and raised his price target for Reddit stock from 225 to 260. He also identified a promising growth potential in international markets.
Reddit Stock’s Recent Performance
Despite the recent downturn, Reddit’s stock saw an increase of over 2%, reaching 200.90 in afternoon trading. The company has experienced substantial growth, with its stock price increasing nearly 500% since its IPO in March 2024. However, shares have declined roughly 30% from a high of 282.95 on September 18.
Market Concerns
One major concern among investors is whether Reddit can sustain its rapid user growth. This concern was heightened by a third-party research report indicating that ChatGPT was referencing Reddit posts less frequently. Nonetheless, some analysts argued that ChatGPT’s contribution to Reddit’s traffic is relatively minor. Squali supported this claim by citing third-party data showing consistent citation rates for Reddit within Google’s AI search features.
The Future of Reddit Stock
Squali expressed confidence in Reddit’s ability to generate significant search referral traffic, as Google continues to dominate the market with over 90% share. According to Squali:
- Reddit is likely to maintain strong traffic from Google’s AI overviews and searches.
- The platform’s Relative Strength Rating stands at 97 out of a possible 99, indicating strong performance over the past year.
As the market watches closely, the outlook for Reddit stock remains hopeful, depending on upcoming earnings and strategic enhancements within the platform.
