Could Reddit stock benefit from the ongoing meme stock craze?

on Jun 3, 2024
Updated: Jun 4, 2024
  • Wall Street analysts hardly see any meaningful upside in Reddit.
  • $RDDT recently announced a partnership with OpenAI.
  • Reddit stock is currently up some 40% versus its YTD low.

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Reddit Inc (NYSE: RDDT) has gained nearly 40% since its year-to-date low but it may be as far as the stock goes for now.

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Reddit stock lacks a meaningful upside

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The likes of GameStop and AMC Entertainment are soaring this morning after the Reddit user who inspired the short squeeze of 2021 hinted at a $116 million position in $GME.

Keith Gill shared a screen shot potentially of his portfolio on the social media this past weekend that disclosed the aforementioned stake in GameStop.

But is it possible that his post and the related meme stock craze be any sort of a material benefit for the Reddit stock? Not very likely, as per Wall Street analysts.

Analysts at Needham & Company, for example, do rate $RDDT currently at “buy” but their $55 price objective is roughly in line where the stock is already trading at writing. In other words, their price target does not really suggest any upside for the social media company from here.

Reddit’s IPO (initial public offering) was $34 per share.

Are Reddit shares an AI play?

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Last month, Reddit Inc announced a partnership with OpenAI – a deal that Needham analysts praised in their recent research note to clients.

We believe that $RDDT library of 18 years of human conversations, updated daily, is increasingly valuable for training large language models (LLMs) and for social listening for brands.

But JPMorgan analysts are convinced the upside is already factored in as the valuation currently is healthy. Their research note acknowledged in May that the narrative is compelling in $RDDT but the company requires impressive execution to unlock further upside.

JPM’s $47 price target on Reddit stock translates to a near 15% downside from here. Note that a bunch of other investment firms including Piper Sandler, Deutsche Bank, and Roth MKM have a buy rating on $RDDT as well but none of them have a price target above the stock’s current valuation.

That’s interesting considering Reddit reported its financial results for the first quarter in May that handily topped Street estimates. The social news aggregation platform forecasts up to $255 million in revenue in its current quarter – well above analysts at $224 million.

Reddit ended its recent quarter with 82.7 million DAUs (daily active users) – also above 76.6 million that experts had forecast. Reddit shares are currently down close to 20% versus their YTD high.

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