Reddit Partnerships With OpenAI, Google And Sprinklr Drive Upside: Analysts

Reddit, Inc RDDT is benefiting from Alphabet Inc GOOGL Google search changes as well as partnerships with artificial intelligence innovator OpenAI and Sprinklr Inc CXM.

Here are the analyst takes.

• Piper Sandler analyst Thomas Champion reiterated an Overweight rating on Reddit with a price target of $70, up from $65.
• JMP analyst Andrew Boone reiterated a Market Outperform rating and $84 price target on Reddit.
• Goldman Sachs analyst Eric Sheridan maintained a Neutral rating and a price target of $60 on Reddit.

Check out other analyst stock ratings.

Piper Sandler: Reddit delivered another quarter of solid results, with revenues 13% above Champion’s expectations and EBITDA margins better.

Revenues of $281 million grew 54% year-on-year, 13% ahead of the analyst’s forecasts, driven by substantial U.S. revenues of $228 million.

User growth looks stronger through year-end while the nascent ads business gains scale. Global DAUs climbed to ~91 million on average for the second quarter, 9 million above the analyst’s 82 million forecast. Data Licensing revenue was $28 million, up from $20 million in the first quarter and also up almost 8x Y/Y.

Adjusted EBITDA of $40 million surpassed Champion’s $11 million EBITDA forecast driven by leverage in the model.

For the third quarter, management is now guiding to revenue of $290 million—$310 million and EBITDA of $40 million—$60 million, which compares to Champion’s prior forecast of $272 million and $19 million EBITDA. Following quarterly results, Champion raised his third-quarter revenue and EBITDA forecasts to $312 million and $56 million and his full-year 2024 estimates to $1.20 billion and $188 million from $1.08 billion and $94 million prior.

JMP: Reddit reported exceptional second-quarter results, with quarterly DAU and revenue accelerating 13 points and 5 points and coming in 8% and 11% ahead of consensus, respectively, while EBITDA came in $26 million above consensus, Boone noted.

The third-quarter revenue guidance came in 6% ahead of consensus at the midpoint; EBITDA guidance came in $18 million above consensus at the midpoint. Boone views both as conservative, as Reddit is executing extremely well across all areas of its business.

Reddit is benefiting from Alphabet-owned Google search changes, Boone says.

Reddit boasts a faster user experience, improved onboarding, greater personalization and relevance, he added. These factors lead to better retention and engagement.

With a capital-light business model, revenue growth, and margin expansion early, Boone noted materially free cash flow ramps over the next few years.

Boone projected third-quarter revenue and EBITDA of $309.2 million and $32.1 million.

Goldman Sachs: The second-quarter total revenues beat Goldman Sachs estimate.

Third-quarter guidance is above prior expectations driven by better-than-expected strength in its core advertising business and continued scaling of data licensing revenues (introduction of OpenAI and Sprinklr partnerships), Sheridan noted.

The adjusted EBITDA beat Goldman Sachs’s estimate, Street and third-quarter guidance was well above prior expectations, with management pointing to high incremental margins of data licensing revenues and continuing to drive operating leverage.

Sheridan projected third-quarter revenue of $309 million.

Price Action: RDDT stock traded lower by 7.01% at $50.61 at last check Wednesday.

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