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Key Takeaways

• Shares of Reddit tumbled Thursday after the company reported fewer-than-expected users in the fourth quarter.

• However, several analysts told clients they view the stock's drop as an opportunity to buy the dip.

• The analysts attributed the user miss to a “transient” change to the Google Search algorithm, and said they expect stronger traffic in the current quarter.

As Reddit (RDDT) shares tumbled Thursday on the social media company's weaker-than-expected user growth, analysts said they see an opportunity to buy the dip.

Deutsche Bank analysts, who suggested Reddit's user growth in the fourth quarter was held back by a “transient” shift in Alphabet's (GOOGL) Google Search algorithm, said they believe the "user blip creates an attractive buying opportunity." The analsyts maintained a "buy" rating and $235 price target for the stock, implying about 18% upside from Thursday's intraday price.

Morgan Stanley analysts, who raised their target to $210 from $200, told clients to “buy the GOOGL blip dip” as well, pointing to the Reddit's "broad-based strength across ad verticals." They also highlighted potential benefits from the rollout of Reddit Answers, an artificial intelligence tool launched in December to a limited number of users. Reddit Answers is designed to answer users’ questions and provide summaries of Reddit threads, and analysts said it could be a “key driver of retention.”

JPMorgan analysts, who raised their price target to $185 from $142, told clients Reddit “continues to execute well and capture share” of advertising revenue. The analysts added they see Reddit growing its ad revenue by more than 20% over the next few years.

Shares of Reddit fell close to 8% intraday Thursday to $199.72, but even at that level, they have gained nearly sixfold from their initial public offering price of $34 in March 2024.

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