Bank of America analysts have recently initiated coverage on Reddit, the social media platform, with a ‘neutral’ rating and a price target of $46, despite lingering concerns about volatility.
In their client note, the analysts acknowledged significant growth prospects for Reddit, which debuted on the New York Stock Exchange on March 21 at an IPO price of $34. However, they cautioned that volatility in the market is likely to persist.
Highlighting Reddit’s potential to convert its 500 million monthly active users into daily active users, the analysts emphasized opportunities for monetization in areas such as comments, search, and video content. Additionally, they pointed to potential revenue and EBITDA upside driven by new data deals. 
Despite being an established social company founded in 2005, the analysts believe Reddit still has many growth avenues to explore. They noted that Reddit’s user reach and average revenue per user (ARPU) are lower compared to newer social platforms like Pinterest and Snap, suggesting the potential for superior growth.
Reddit’s recent efforts to enhance content quality and search relevance have resulted in improved revenue per user over the past year. However, the analysts indicated that there is still room for further improvement based on their proprietary user survey.
Regarding potential risks associated with Reddit’s stock, the analysts highlighted the platform’s dependency on Google for a significant portion of its traffic, its reliance on volunteer moderators, and its relatively nascent AdTech capabilities compared to larger competitors. They also mentioned content risks, citing past instances of user and advertiser backlash following policy changes.
In conclusion, the analysts anticipate continued volatility in Reddit’s user and revenue trends, particularly amidst current macroeconomic and rate uncertainty. As a result, they expressed a preference for larger-cap stocks in the sector. As of Tuesday afternoon, Reddit shares were trading around $41.
