Reddit Stock Initiated With Buy Call On Bullish Advertising Growth, AI Potential

• Reddit recently launched R-Max, an AI-powered ad tool similar to offerings from Meta, Alphabet, and Amazon, to optimize targeting and bidding for advertisers
• The company is reporting 75% year-over-year growth in advertiser count and has data licensing deals with OpenAI and Alphabet to train AI models, creating a potential recurring revenue stream
• Reddit stock broke out above a $246.15 buy point on January 5 and holds a Composite Rating of 99 out of 99 on IBD's rating system, placing it on the IBD 50 list of leading growth stocks

Summary: Reddit Stock Receives Buy Rating on Advertising Growth and AI Potential

Evercore ISI analyst Mark Mahaney initiated coverage of Reddit stock with an outperform (buy) rating and a price target of $320, citing significant revenue growth opportunities. Reddit stock rose over 1% to $247.82 in premarket trading, having already gained more than 40% over the past 12 months and surged over 600% since its March 2024 IPO.

Key Investment Thesis:

Mahaney believes Reddit can substantially increase its average revenue per user through recent product launches, particularly R-Max, an AI-powered advertising tool that optimizes targeting and bidding. The platform features over 2 billion posts across 100,000+ communities, generating revenue primarily from advertising.

Competitive Positioning:

The analyst expects Reddit to sustain 20%-30%+ revenue growth longer than competitors like Snap, Pinterest, and X (formerly Twitter) due to its "high-intent, search-like inventory" and accelerating 75% year-over-year growth in advertiser count. New initiatives include Shopping Ads and expanded R-Max capabilities.

AI Opportunities:

Reddit has secured data licensing deals with OpenAI and Alphabet to sell user-generated content for AI training. Mahaney suggests these arrangements could evolve into dynamic pricing structures, creating a "material and recurring revenue stream." The company is also deploying generative AI internally for content moderation, discovery, and advertiser support.

Risks and Technical Position:

While AI-enhanced search results could reduce referrals to Reddit, Mahaney views the company as a "net beneficiary" of generative AI. Reddit stock broke out above a $246.15 buy point on January 5 but has since retreated. It holds a Composite Rating of 99 out of 99 and appears on IBD's 50 list of leading growth stocks.