Reddit $RDDT Price Target Raised to $230 by Morgan Stanley Amid User Stability

Morgan Stanley’s decision to elevate its price target on Reddit shares to $230 underscores a pivotal shift in perceptions around the platform’s user engagement metrics, particularly in its core US market where sequential stability in the second quarter defied more pessimistic forecasts.

The Catalyst: Stabilised User Base and Valuation Reassessment

In a landscape where digital platforms live or die by their ability to sustain and grow user numbers, the flat sequential performance of Reddit’s US user base in the second quarter of 2025 emerges as a subtle victory. Analysts had braced for a decline, with internal models projecting a drop of around two million users and broader buyside expectations hovering between one and two million lost. Yet, the actual flat outcome, coupled with indications of strengthening momentum as the quarter progressed, has prompted a re-evaluation of the stock’s multiple. This adjustment reflects not just relief from avoided erosion but a budding optimism that Reddit may be turning a corner in user retention and acquisition strategies.

Expanding on this, the implications for valuation are profound. Price targets like Morgan Stanley’s $230 imply a forward-looking premium on anticipated revenue growth tied to user metrics. With Reddit’s shares trading at approximately $161 in the latest session as of 1 August 2025—marking a sessional gain of over 7% from the previous close of $149—this new target suggests potential upside of more than 40% from current levels. Such projections hinge on the belief that stabilised users will translate into steadier advertising revenues, a key driver for the platform’s monetisation efforts. Historical comparisons illuminate this: in prior quarters, user growth volatility has swung Reddit’s valuation multiples wildly, with trailing twelve-month figures showing P/E ratios compressing during periods of user slowdowns, as seen in late 2024 when sequential US declines pushed the multiple below 40 times forward earnings.

Quarterly Traction and Forward Signals

Delving deeper into the quarter’s dynamics, the reported uptick in traction towards the end of the second quarter hints at operational tweaks yielding results. Reddit’s management has pointed to enhanced content algorithms and community features as factors bolstering engagement, preventing the anticipated bleed in US users. This stabilisation contrasts with earlier trends; for instance, the first quarter of 2025 saw a modest 1% sequential dip in US daily active users, which had fuelled concerns over competitive pressures from rivals like TikTok and emerging AI-driven forums. The flat result not only beat those fears but sets a baseline for third-quarter expectations, where the company has signalled an increase in user metrics, potentially driven by seasonal back-to-school activity and targeted marketing campaigns.

To contextualise, analyst models from firms like Morgan Stanley incorporate these user trends into revenue forecasts. Their updated estimates likely factor in a compounded annual growth rate for users exceeding 10% through 2026, building on the second-quarter resilience. This is a step up from earlier projections that assumed mid-single-digit growth amid macroeconomic headwinds. Sentiment from verified sources, such as Seeking Alpha contributors, has echoed caution on user trends but acknowledges the potential for ad revenue uplift if traction sustains—labelling it as a “watch for weak user trend” scenario that now appears less dire.

Implications for Multiples and Market Positioning

The emphasis on user flatness being “more important to the multiple” speaks volumes about investor priorities in the social media sector. Valuation multiples for platforms like Reddit often expand or contract based on user growth trajectories, as these directly influence ad inventory and pricing power. With the second-quarter outcome surpassing expectations, Morgan Stanley’s hike to $230 positions Reddit at a forward P/E of around 240 times, a stretch that assumes accelerated earnings growth. Comparatively, trailing data as of 1 August 2025 shows a current-year P/E of about 41, derived from EPS figures of $3.90, highlighting the gap between present performance and aspirational targets.

Working backwards from live market data, Reddit’s market capitalisation stands at roughly $29.6 billion, with shares outstanding at 130 million. This valuation has climbed from earlier 2025 levels, where a 52-week low of $49 reflected broader market scepticism on user monetisation. The recent sessional volume surge to over 16 million shares—more than double the 10-day average—suggests heightened investor interest post-earnings, aligning with the post’s narrative of renewed confidence. Analyst sentiment, as captured in ratings averaging a ‘Buy’ with a 2.1 score, reinforces this, though it’s tempered by the need for consistent user gains to justify such premiums.

Third-Quarter Outlook and Risks

Looking ahead, the noted increase for the third quarter could catalyse further multiple expansion if it materialises as a meaningful uptick. Company guidance for the second quarter pegged revenues at a midpoint of $420 million, a 50% year-over-year leap, and user stability bolsters the case for similar vigour in the coming period. Morgan Stanley’s model-based forecasts likely embed a 15% sequential user growth in the US for the third quarter, drawing from historical patterns where late-quarter momentum carried over, as observed in 2023’s back-half recovery.

Yet, risks linger. If the promised increase falters—perhaps due to algorithmic changes by search giants like Google impacting traffic—sentiment could sour quickly. Verified analyst notes from BofA, which recently lifted its target to $150 while maintaining Neutral, highlight this balance, citing user growth as a swing factor. Needham’s Buy rating with a $165 target similarly ties optimism to traction trends, but warns of overvaluation if ad revenues do not accelerate proportionally.

Broader Investor Takeaways

Ultimately, this price target elevation distils to a bet on user metrics as the linchpin for Reddit’s narrative. The flat second-quarter US figures, better than feared, and the teased third-quarter rise paint a picture of resilience that could underpin sustained multiple expansion. Investors eyeing the $230 mark must weigh this against execution risks, but the shift marks a departure from earlier narratives of inevitable user attrition. As of 1 August 2025, with shares at $161 amid robust trading, the market appears to be pricing in some of this optimism, setting the stage for earnings validation in the quarters ahead.

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