Needham analysts raise price target for Reddit, citing "robust business model"

Investing.com -- "Strong" first-quarter results at Reddit (NYSE:RDDT) have led analysts at Needham to raise their price target for the social media group's stock to $63 from $55, according to a note to clients from the investment bank.

The analysts also added Reddit on to their conviction list, replacing software firm DoubleVerify (NYSE:DV), saying the company has a "robust business model."

"From an earnings and valuation point of view, we are most optimistic about [Reddit]'s upside from licensing its data to train [generative artificial intelligence large-language models]." the analysts at Needham added.

In a post-earnings call, executives at Reddit said they were in the early stages in the "monetization journey" of its data licensing unit. When filing for its initial public offering in March, Reddit had suggested that licensing its data to help train AI models could represent a major future revenue stream.

However, analysts at Citi flagged that it remains to be seen if "demand for Reddit’s data licensing solution expands."

Shares in Reddit soared in premarket trading Wednesday after it reported better-than-expected first-quarter revenue and delivered upbeat revenue guidance for the current quarter, driven by strong user growth.

In the three months until the end of March, Reddit reported a loss of $8.19 a share, wider than the $1.05 loss a share a year earlier, while revenue was up 48% to $243 million. That compared with analysts estimates for a per-share loss of $8.71 on revenue of $212.8M, according to LSEG data cited by Reuters. The loss was driven by expenses related to the company's IPO, Reddit noted.