Why Reddit Stock Inched Higher on Thursday

Key Points

• A team of analysts made a bullish move on the company's stock.

• It added $20 to its price target on the shares.

• 10 stocks we like better than Reddit ›

Internet discussion forum operator Reddit (NYSE: RDDT) was the talk of numerous investors on Thursday, and for the most part, the chatter was positive. The company's share price rose by nearly 1% -- good enough to notch an all-time high -- thanks in no small part to a bullish move from a researcher on Wednesday afternoon. That increase more or less matched that of the bellwether S&P 500 index that day.

Untapped potential

That Reddit-tracking company was Jefferies, whose analysts reiterated their buy recommendation on the stock while slightly increasing their price target to $320 per share (formerly it was $300).

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Image source: Getty Images.

Reddit is lumped in with the social media stocks grouping, but within this small cabal, it's unique. It doesn't focus on updating acquaintances like Meta Platforms' Facebook or photo-sharing like the same company's Instagram. Instead, it offers users the chance to discuss, debate, and explain any topic they're curious about.

According to reports, the Jefferies team is particularly encouraged by what they consider to be Reddit's potential to boost revenue significantly. In their modeling, they believe that the specialized tech company could post full-year 2027 revenue topping the current consensus analyst estimate by a rich 35%.

The analysts also pointed out that the company's U.S. average revenue per user (ARPU; a crucial metric in the social media industry) is well below that of certain peers, offering significant upside potential.

Second-quarter surges

To an extent, Reddit is still basking in the glow of its impressive second quarter, the figures for which were published at the end of July. The company managed to boost its revenue by a robust 78% year-over-year (to $500 million), and flip to a net profit that was well in the black, at $89 million. Both headline figures, by the way, trounced the average analyst estimates.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group and Meta Platforms. The Motley Fool has a disclosure policy.