Overview
BofA Securities reduced its 12-month price target on Reddit (NYSE: RDDT) to $205 from $210 but retained a Neutral rating on the shares. The firm attributed the change to multiple compression in the online media sector even as it adjusted up its multi-year revenue and EBITDA projections for the company.
Market context and current share price
Reddit is trading at $151.05, a marked decline from its 52-week high of $282.95. At the same time, third-party Fair Value analysis provided by InvestingPro suggests the stock may be slightly undervalued when measured against a composite Fair Value calculation.
Fourth-quarter operating and financial performance
The company reported fourth-quarter revenue of $726 million and adjusted EBITDA of $327 million, both figures beating Street expectations of $668 million and $288 million, respectively. Advertising revenues in the quarter increased 75% year-over-year, a growth rate that accelerated by 1 percentage point despite facing a 6-point tougher comparison from the prior year.
InvestingPro data highlighted Reddit's strong profitability metrics, showing gross profit margins of 91.21%, underscoring the platform's efficiency in converting revenue into gross profit.
User metrics and guidance
Daily active users (DAUs) reached 121.4 million in the fourth quarter, outpacing analyst expectations of 119.9 million. However, logged-in users totaled 50.7 million, slightly below the anticipated 52.1 million. For the first quarter, Reddit provided revenue guidance in the range of $595 million to $605 million, which represents year-over-year growth of 52% to 54% and exceeds the Street consensus of $575 million.
BofA's model updates and valuation approach
Despite lowering the target, BofA increased its 2026 revenue estimate by 4% to $3.1 billion and raised 2026 EBITDA by 4% to $1.3 billion. For 2027, the firm lifted revenue forecasts by 5% to $4.1 billion and nudged EBITDA up 4% to $1.9 billion.
The reduced target reflects the application of a slightly lower valuation multiple - 9.5x versus the prior 10x - applied to the higher 2027 revenue projection. BofA noted that its multiple still sits at a premium relative to Reddit's peer group, justified in the firm's view by Reddit's stronger revenue growth and higher margins.
Additional analyst moves and company commentary
Other major financial institutions also adjusted their price targets following Reddit's earnings. Morgan Stanley lowered its target to $240 from $265 while maintaining an Overweight rating, citing robust performance and the potential for 54% growth at the top end of first-quarter guidance. Goldman Sachs cut its target to $206 from $236 and kept a Neutral rating.
Reddit's fourth-quarter report for 2025 showed both earnings per share and revenue ahead of expectations, with revenue up approximately 70% year-over-year for the period. The earnings release and subsequent call emphasized steady user growth - primarily driven by logged-out traffic - and sustained advertising momentum. Management used the call to reaffirm its strategic priorities for the medium to long term.
Takeaway
BofA's modest downward adjustment to Reddit's price target reflects sector-wide compression in valuation multiples even as the firm and others lift multi-year estimates in light of stronger-than-expected revenue and EBITDA performance. The company’s user and advertising trends, coupled with high gross margins, continue to inform analysts’ forecasts, but near-term multiples appear sensitive to broader sector dynamics.