Shares of social news platform Reddit (RDDT) dropped over 7% in after-hours trading yesterday, on news of a $1.2 billion stock sale by its shareholder, Advance Magazine Publishers. Shares gained nearly 16% in Thursday’s regular trading on receiving bullish Buy signal from an analyst.
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Bloomberg was the first to report the news, citing people familiar with the matter. The shareholder aims to leverage a credit facility by using the equity stake it has in Reddit.
RDDT shares have zoomed over 178% in the past six months, earning a potential hefty return for the shareholder.
More About Reddit and the Shareholder
Advance Magazine Publishers is offering to sell 7.8 million RDDT shares at a price range of $145.38 to $148.54 apiece, fetching roughly $1.2 billion. The range depicts an 8% discount to Reddit’s closing trading price of $158.02 on November 21. As of September 30, the company owned 24% of Reddit’s Class A and B shares combined.
Interestingly, Advance Magazine does not seem to let go of its lucrative Reddit holding and is buying derivatives on the shares offered. This will enable the shareholder to maintain its ownership stake in Reddit. However, the report also noted that the details of the stock sale and derivative ownership could change since the decision is not final yet.
Piper Sandler’s Bullish View on RDDT
Piper Sandler analyst Thomas Champion reiterated a Buy rating on RDDT stock and lifted the price target to a new Street High of $150 from $115, implying 5.1% downside potential. According to the firm’s October ad metrics, Alphabet’s Google has started monetizing searches with “Reddit” in the title, adding paid links and product ads above results. This, the analyst believes, will enable Reddit to grow its organic top-of-funnel marketing.
Accordingly, Champion raised Reddit’s FY25 revenue and EBITDA (earnings before interest, tax, depreciation, and amortization) estimates by 5% and 10%, respectively. The analyst believes that Reddit has more opportunities to monetize its average revenue per user growth to 9% in FY25-26, up from 7% guided earlier. The analyst’s bullish views sent Reddit’s shares surging higher yesterday.
Is Reddit Stock a Good Buy?
Analysts remain divided on Reddit stock. On TipRanks, RDDT stock has a Moderate Buy consensus rating based on ten Buys, five Holds, and one Sell rating. The average Reddit Class A stock price target of $106.88 implies 32.4% downside potential from current levels.
