MW Reddit's stock upgraded as analyst says Google Search fears are overblown

By James Rogers

Seaport Research Partners expects Reddit to still see long-term user growth despite the 'near-term headwind' of Google Search changes

Shares of Reddit Inc. ended Monday's session up 2.2% after Seaport Research Partners upgraded the social-media platform to buy from neutral, saying that fears about the impact of changes to Google's search engine are overblown.

Seaport Research Partners analyst Aaron Kessler described recent changes to the Google Search algorithm - which is important for Reddit's user engagement - as a near-term headwind.

Last week, Reddit's (RDDT) first-quarter daily active users, revenue and profit topped Wall Street's expectations. But speaking during a conference call to discuss the results. Chief Executive Steve Huffman said that the search ecosystem is "under heavy construction" and that the near-term environment "could be more bumpy than usual."

To illustrate his point, the CEO said that Reddit's daily active users grew in the midteens year over year during April, which he described as "short-term bumps." For comparison, first-quarter daily active users grew 31% year over year.

Related: This is why Reddit's stock is rising after earnings

Set against this backdrop, Reddit's stock ended Friday's session down 4.2%. Nonetheless, Seaport described itself as "buyers on the pullback" in Monday's note. Reddit's valuation is now attractive at around 10 times 2026 enterprise value to revenue, Seaport noted, while it maintained its $165 price target for the stock.

Despite the near-term headwinds related to Google Search $(GOOGL)$ $(GOOG)$, Seaport also remains confident in Reddit's ability to deliver long-term user growth. "We believe increasing logged-in users as well as Reddit becoming a stronger brand over the last few years (6th-most Googled search term) should continue to drive healthy long-term user growth in the U.S.," wrote Kessler. "While AI search answer is gaining popularity, we continue to believe most users will want to more deeply research topics and Reddit is an alternative to AI answers."

Seaport expects to see international growth, in particular. "The strength is in part being driven by machine translation, which is now available in 13 languages with more expected this year," Kessler noted.

Reddit's international daily active unique users grew 41% to 58 million in the first quarter - outpacing the U.S., where daily active unique users grew 21% to 50.1 million.

Seaport expects Reddit to deliver 20%-plus long-term revenue growth and 50%-plus Ebitda margins.

Of 28 analysts surveyed by FactSet, 18 have an overweight or buy rating on Reddit shares, nine have a hold rating and one has a sell rating.

Shares of Reddit, which went public in March 2024, are down 28.8% in 2025, outpacing the S&P 500 index's SPX decline of 3.9%.

-James Rogers

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May 05, 2025 16:52 ET (20:52 GMT)

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