Morgan Stanley raises Reddit stock price target to $230 on user growth

Morgan Stanley raised its price target on Reddit (RDDT) to $230 from $170, maintaining an Overweight rating, following the company's Q2 2025 results that significantly exceeded analyst expectations. Reddit reported robust financial performance, including 64% year-over-year revenue growth, a 90.8% gross profit margin, and an 84% acceleration in advertising revenue, driven by better-than-expected user retention that defied projections of decline. This strong operational execution has prompted multiple other firms to also increase their price targets, reflecting a positive analyst outlook despite the stock currently trading above its estimated fair value.

Analysis

Reddit (RDDT) demonstrated significant operational momentum in its second-quarter 2025 results, leading to a wave of positive analyst revisions. The company reported earnings per share of $0.45, more than double the $0.19 forecast, and revenue of $500 million, which, along with EBITDA, surpassed the high end of guidance by 16% and 28% respectively. This outperformance was driven by surprisingly resilient user metrics, with U.S. users remaining flat quarter-over-quarter, defying Morgan Stanley's projection of a 2 million user decline. The strong user base fueled an 84% year-over-year acceleration in advertising revenue and contributed to overall revenue growth of 64% Y/Y with an exceptionally high 90.8% gross profit margin. Consequently, multiple investment banks have raised their price targets, including Morgan Stanley to $230, Citizens JMP to $225, and Goldman Sachs to $212. This bullish sentiment is underpinned by Reddit's forward-looking initiatives, such as improved search and machine translation, aimed at driving sustainable international growth. However, a key point of caution is the observation that the stock is currently trading above its estimated fair value, suggesting high market expectations are already priced in.

Key Decisions for Investors

• Given the powerful earnings beat, accelerating revenue growth, and multiple significant price target upgrades, investors could view the current momentum as a strong bullish signal.
• Caution is warranted as the stock is noted to be trading above its estimated fair value, indicating that the positive outlook may be largely priced in and increasing downside risk on any future performance disappointments.
• Investors should closely monitor the company's ability to deliver on its user growth initiatives, as sustained expansion in Daily Active Users (DAUs), particularly internationally, is critical to justifying the current valuation and bullish analyst ratings.