Reddit (NYSE: RDDT) is surging higher, climbing 6% to $206 as of early trading on October 20.
Indeed, this surge comes at a time when RDDT stock has faced volatility, dropping 20% over the past month. Year-to-date, however, the social media giant remains up 24%.
The rally comes after investment firm Raymond James raised its Reddit stock price target to $250 from $225, while maintaining a ‘Strong Buy’ rating.
Notably, Raymond James analyst Josh Beck, highlighted a stronger outlook for Reddit’s advertising revenue driven by improvements in monetization metrics and the company’s growing potential in AI-powered search.
Beck’s updated bottom-up Average Revenue Per User (ARPU) model outlines a $100 U.S. logged-in ARPU bull case, fueled by moderate increases in ad load, a substantial jump in CPMs (cost per thousand impressions), and a boost from AI search capabilities that are expected to lift on-platform query volumes.
According to Beck, recent agency checks indicated CPMs exceeding $6 for e-commerce campaigns, representing triple-digit growth year-over-year.
Even under a more conservative scenario, Reddit’s generic campaign CPM estimate has been raised to $4 from $2 in prior analysis, signaling that advertisers are paying far more to reach users on the platform.
The analyst’s model assumes that Reddit’s home feed ad load could rise from 13% to 17%, which remains below peers like Meta and Snap that operate in the 25–50% range.
Reddit stock fundamentals
Additionally, the firm projects Reddit’s AI Search/Answer feature could increase monthly queries from 1.5 billion to 4 billion, creating an untapped $350 million revenue opportunity.
The bullish call builds on Reddit’s impressive fundamentals. The company boasts a 91.04% gross profit margin and has grown its revenue by 70% year-over-year, reaching $1.67 billion over the past twelve months.
Raymond James’ upgrade adds to a chorus of optimistic analyst outlooks. Citizens Financial recently maintained its ‘Market Outperform’ rating with a $300 price target, while Truist Securities lifted its target to $260, citing expectations for strong third-quarter results and upbeat fourth-quarter guidance.