Wall Street ratings continue to roll in for Reddit (NYSE: RDDT), the social media stock that went public just last month.
Reddit has been volatile in its first few weeks of trading as the stock searches for equilibrium, but one analyst thinks it has more upside from here. In fact, Deutsche Bank just initiated coverage on the stock with a buy rating and a price target of $50.
Deutsche Bank is bullish on Reddit
In an analyst note, Deutsche Bank analyst Ben Black said Reddit is on the verge of a number of positive inflection points. It noted that top-of-the-funnel growth is accelerating, the advertising platform is improving, and its data licensing business focused around generative AI applications like large language models has a lot of potential.
Can Reddit be a winner?
Reddit stock jumped on the buy rating, and it was up nearly 3% on Tuesday. Though Deutsche Bank's $50 price target is 47% higher than the IPO price, it's 33% lower than Reddit's all-time high from the first few days of trading.
And the stock is still far from a slam dunk. Even with 267.5 million weekly unique active users in Q4 2023, Reddit is unprofitable, and it has never generated a profit in its nearly 20-year history.
Its revenue growth, while solid at over 20% last year, isn't strong enough to make the stock a buy on its own.
The most intriguing part of the bull thesis is its partnership with AI companies like OpenAI and its opportunity to license its user-generated content to train large language models and other AI programs.
Reddit does seem well-positioned to benefit from such a revenue stream as it has nearly 20 years' worth of organized content across more than 100,000 subreddits. However, that business is still emerging. Though Reddit has upside potential, investors should regard it as a high-risk stock.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
