Key Takeaways

Reddit ( RDDT ) shares climbed to a record high Monday after analysts from Morgan Stanley upgraded the social media stock, citing the company's "multiple levers" for potential growth heading into 2025.

The analysts said they "have been wrong on the sidelines" about the stock's growth since its initial public offering (IPO) earlier this year . They lifted their price target to $200 from $70 and upgraded the stock to "overweight" from "equal-weight," highlighting new tools and products that could help grow Reddit's user base and advertising revenue over the next year.

Reddit's User Base, Ad Technology Expected to Continue Growing

“In effect, RDDT is shipping engagement and ad products rapidly and has multiple levers to drive outsized growth,” the analysts wrote Sunday.

Reddit's daily active users (DAUs) have grown about 20% faster than Morgan Stanley's model had projected, and the analysts said they expect Reddit's user base to keep growing along with the time users spend on the platform. They noted features like improved search and a partnership with Alphabet's ( GOOGL ) Google driving more users to Reddit links as tools to bring in new users.

A larger user base that spends more time on the platform would also make Reddit more attractive to advertisers, which could bring Reddit's ad pricing closer to its competitors like Google and Meta ( META ), the analysts wrote. They said Reddit is also likely to launch a number of ad-focused products with more automation and artificial intelligence (AI) -powered features over the next year.

Separately, Reddit on Monday announced a new search feature with a trial run of "Reddit Answers." A "limited number of users in the U.S." will be the first to access the AI tool that can answer questions with summaries of Reddit threads on the topic, with popular answers from Reddit commenters highlighted and links for the user to read more into the threads.

Reddit shares were up over 3% to $168 in afternoon trading Monday after paring back some gains earlier in the session.

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