Analyst Coverage Initiated#
D.A. Davidson analyst Wyatt Swanson has recently started covering Reddit, giving it a Buy rating and setting a price target of $200. He believes that the significant drop in Reddit's share price this year offers a favorable entry point for potential investors.
Reasons for Stock Decline#
Reddit's shares have decreased by approximately 28% year-to-date. This decline is attributed to concerns about slowing user growth, the company's negotiations with major AI firms, and general economic uncertainty. Despite these challenges, Swanson argues that Reddit is still "incredibly under-monetized" compared to its competitors.
Structural Advantages#
Swanson points out that Reddit's platform, which focuses on text-based community discussions rather than short videos or social networking, gives it a unique advantage. He notes that Reddit is frequently cited by major AI platforms like ChatGPT and Google AI, making it a valuable data source for large language models (LLMs).
Future Outlook#
Looking ahead, Swanson anticipates that Reddit will exceed daily active user estimates in its upcoming first-quarter results, based on traffic data from Similarweb. He also mentions that Reddit is involved in ongoing data licensing negotiations with AI companies, with existing contracts set to renew in 2027. Swanson expects these agreements could be renegotiated at higher rates.
Additionally, Reddit is pursuing legal action against Anthropic for allegedly using its content without permission. Swanson believes a settlement is likely, which could positively impact Reddit's revenue in 2026 and 2027. He concludes that while challenges may persist, the current stock performance presents a potential buying opportunity.