Reddit stock pushed higher Wednesday on positive analyst comments. Shares of the social media site slipped earlier this month on concerns about slowing web referrals from AI chatbots.
Reddit stock remains below its 50-day moving average and shares are down 12% this month, including Wednesday's early gains. But several catalysts ahead could give Reddit stock a boost, Truist analyst Youssef Squali said in a client note Wednesday.
Squali expects a "strong" third quarter earnings report, with results at the high end of current expectations. Reddit will report results on Oct. 30.
Squali is also positive about a plan from Reddit to unify the search function on its platform and a recently launched generative AI-powered Answers feature.
"As gen AI search continues to increase, we believe Reddit's unified search product stands to be a notable beneficiary," Squali wrote. "Reddit's main differentiation is that it can leverage authentic, human conversations and contextually relevant conversations in its app. Reddit's core search product sees 70 million weekly users while its gen AI Answers feature sees 6 million weekly active users (as of June 30), which have been growing quickly this year but still remain a fraction of the company's 'hundreds of millions' of total weekly users."
Growing as a search-engine could help drive new growth for Reddit's ad business and make it easier for users to find new subreddits, he added.
Squali reiterated a buy rating and upped his price target for Reddit stock to 260, from 225. He also believes the company has "a significant growth opportunity" in international markets.
Reddit stock was ahead more than 2% at 200.90 in recent trades on the stock market today.
Reddit Stock's October Slide
Propelled by a fast-growing ad business and deals to license its data to AI developers, Reddit stock has soared nearly 500% from its IPO price in March 2024.
But shares have pulled back by nearly 30% from an intraday record high of 282.95 on Sept. 18. The big question on Wall Street for Reddit is whether the social media platform can keep up its rapid user growth as Google shifts more of its search engine toward directly answering questions using AI.
Meanwhile, Reddit stock lost more than 10% on Oct. 1 after a third-party research report indicated that ChatGPT was citing Reddit's user posts less frequently in responses.
Shortly after that report, some analysts bullish on Reddit noted that ChatGPT is a minor source of traffic for Reddit.
Squali made a similar point Wednesday. The Truist analyst cited third-party data showing Reddit citations remain consistent within Google's AI overviews and AI Mode searches.
"We believe Reddit has been generating the majority of search referral traffic from Google, given Google is still the dominant search traffic platform with over 90% market share of search referral traffic," Squali wrote. "We believe the fact that Google (AI overviews) and (AI Mode) have maintained consistent month-over-month citation rates of Reddit bodes well for traffic near-term and into 2026."
Despite the weak month, Reddit stock's Relative Strength Rating remains a strong 97 out of a best-possible 99, showing its outperformance over the past 12 months.
