Investing.com -- Shares of Reddit gained more than 2% premarket Tuesday after Piper Sandler analysts named the platform their "best idea" in the small-to-mid cap (SMID) advertising space, citing strong user growth and expanding inventory.
Piper Sandler raised their price target for Reddit to $197, emphasizing the company’s impressive performance leading into the fourth quarter of 2024.
"RDDT is our best idea in the SMID ad space on growing users + inventory," the analysts noted, adding that they are “buyers into 4Q24.”
They anticipate Reddit will post revenue of $402 million for the quarter, reflecting a 61% year-over-year increase, alongside an EBITDA of $116 million.
The analysts highlighted positive data from Reddit’s Ads Manager, pointing to low single-digit month-over-month user growth and stable to slightly declining cost-per-clicks (CPCs).
"This implies users and new inventory are growing, both positives and monetization should follow," they explained.
Additionally, Piper Sandler praised Reddit’s product enhancements, including its improved Search and Answers features, which they believe are appealing to users and advertisers alike.
They described the company's guidance as "conservative," suggesting potential upside in the upcoming earnings report.
The Piper Sandler report also noted positive sentiment around Google (NASDAQ:GOOGL) and eBay (NASDAQ:EBAY) but remained cautious on Meta Platforms (NASDAQ:META) due to rising capital expenditures and the potential for free cash flow to decline in 2025.