Reddit (RDDT), a social media platform renowned for its community-driven discussions and user-generated content, has been rapidly growing in recent years. Reddit’s stock has been on a searing upward trajectory since its listing in March 2024, rallying 143%. The company now commands a market cap of $21 billion.

And some on Wall Street think shares are poised to rally much higher over the next 12 months. 

Analyst Naved Khan B. Riley has reiterated a “Buy” rating on the stock with a price target of $220. That means Khan expects the stock to almost double from current levels. Is that possible? And what is driving the optimism around the stock, which is already down 31% on a YTD basis? Let’s try and decipher.

Reddit Posts Solid Q1

Reddit recently released its results for Q1 2025 and they were above expectations with both revenue and earnings surpassing estimates. Revenue expanded by 61% from the previous year to $392.4 million accompanied by a 31% yearly rise in daily active users (DAUs) to 108.1 million. Ad revenue, the primary revenue segment of the platform, increased by 61% on a YoY basis to $358.6 million.

Gross margins also improved to a staggering 90.5% from the prior year's 88.6%. Moreover, as compared to a loss of $8.19 per share reported in the year-ago period, Reddit reported an EPS of $0.13 in Q1 2025, comfortably outpacing the consensus estimate for EPS of $0.01.

Net cash from operating activities jumped to $127.6 million from $32.1 million in the previous year as free cash flow improved to $126.6 million from $29.2 million in the past year. Overall, Reddit closed the quarter with a cash balance of $635.73 million.

For the second quarter, Reddit is forecasting revenues in the range of $410 million to $430 million, the midpoint of which implies yearly growth of 49.4%.

Core Catalysts

Reddit’s growing financial resilience is being reinforced by a series of operational advancements designed to enhance user engagement and platform expansion. One major area of focus has been the company’s international outreach, where it is now leveraging machine learning-driven localization and translation tools. The platform’s content is currently accessible in 13 languages, up from 8 in the previous quarter, with recent additions such as Vietnamese, Thai, Polish, Romanian, and Latin American Spanish. This strategy appears to be yielding positive outcomes, with user and revenue metrics abroad showing solid growth. In particular, daily active users in countries like France, Spain, and Brazil are expanding at nearly double the pace of Reddit’s broader international DAU base.

At the same time, Reddit has seen a notable improvement in monetization. Its average revenue per user rose by 23% year-over-year to reach $3.63 in the first quarter, reflecting the effectiveness of ongoing initiatives to improve user value capture. Among these, its Dynamic Product Ads (DPA) test phase has shown promising results, delivering a return on ad spend 90% higher than comparable campaigns from the previous year. Additionally, Reddit’s deployment of its Conversions API (CAPI) has translated into a 75% reduction in cost per landing page for selected advertisers, while outperforming other social media competitors with a 51% lower cost metric.

A significant and emerging source of potential upside lies in Reddit’s ability to monetize its vast content archive through AI licensing. With content licensing for AI model training becoming a viable business stream in 2024, the company reported a 66% year-over-year increase in its “Other revenue” category, totaling $33.7 million in the first quarter. Reddit has also introduced Reddit Answers, a new AI-based search feature that allows users to find posts and product recommendations through a conversational interface. This is part of its broader push in machine learning, which management credits with driving between 40% to 50% of international user growth during the fourth quarter.

Ultimately, Reddit’s emphasis on cultivating interest-specific communities is deepening user engagement. Unlike platforms driven by algorithmic feeds, Reddit users interact with content closely aligned with their passions. This structure also serves advertisers well, as it enables them to tap into highly contextualized environments, improving ad relevance and boosting return on investment.

Analyst Opinions on RDDT Stock 

The wider analyst community is not as bullish about Reddit as Khan. However, they remain cautiously optimistic about the stock, attributing to it a rating of “Moderate Buy” with a mean target price of $158.48. This indicates upside potential of about 39% from current levels. Out of 23 analysts covering the stock, 14 have a “Strong Buy” rating, one has a “Moderate Buy” rating, seven have a “Hold” rating, and one has a “Strong Sell” rating.