Social media site Reddit (RDDT) has made a lot of progress in recent months, particularly in terms of its Google (GOOGL) search rankings. But this success has proven to be a double-edged sword, as growth expectations have increased. The concern now is whether or not Reddit will capitalize on this opportunity, as it has virtually everything it could need to grow revenue. Investors are clearly concerned, as shares are down fractionally in Wednesday afternoon’s trading.
Reddit’s position on Google rankings is doing splendidly, but it now has to convince all that traffic to sign up for an actual Reddit account (logged-in user). The logged-in user tends to mean much higher ad revenue generation than the non-logged-in, so any time Reddit can convert a user to logged-in, it means direct bottom-line benefit.
With Reddit shares down 26% since a peak back in mid-July—and only up 8% since the initial public offering (IPO) gain back in March—it is clear something needs to be done. A major influx of revenue should provide the “something” in question if Reddit can make that happen.
Drawing Attention
The growing web traffic actually has the potential to create a positive feedback loop. As Reddit converts visitors into registered users, it will draw more attention among publishers, who are flocking to Reddit to improve their own visibility.
With Reddit’s traffic up seven-fold in the last nine months, according to a report from Adweek, that’s prompting a lot of publishers to include Reddit in their marketing mix. And with publishers becoming Redditors and, by extension, inviting their readers to do the same, Reddit may not need much internal marketing to make its push for more active Redditors. The publishers who want a shot at that market may be doing the job for it.
Is RDDT a Good Stock to Buy Now?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on RDDT stock based on eight Buys, six Holds, and one Sell assigned in the past three months, as indicated by the graphic below. After a 17.61% rally in its share price over the past year, the average RDDT price target of $66.21 per share implies 22.66% upside potential.
