Reddit on ‘hold’: JP Morgan and Morgan Stanley have commenced coverage on Reddit with ratings equivalent to "hold," indicating a cautious stance as they await further clarity on the social media platform's user growth trajectory. However, both firms express optimism regarding Reddit's potential for ad-revenue expansion and advancements in artificial intelligence (AI) initiatives.

In premarket trading, Reddit's shares saw a modest increase of 0.88 per cent to $42.64. Despite being a recent entrant to the public market, Reddit's reliance on advertising for the majority of its revenue remains prominent, although the company has highlighted AI as a key area for future growth in its initial public offering (IPO) marketing roadshow.

JP Morgan initiated coverage on Reddit with a "neutral" rating and a price target of $47, while Morgan Stanley opted for an "equal-weight" rating with a target price of $45. Analysts at JP Morgan, led by Doug Anmuth, pointed out the acceleration in daily active unique user (DAUq) growth in recent quarters but noted that Reddit's user base of 73 million is still relatively small-scale.

Morgan Stanley, while acknowledging Reddit's growth potential, cited valuation concerns and underlined the need for evidence of robust user growth and improved execution before taking a more bullish stance.

Both Piper Sandler and Roth MKM have issued more positive outlooks on Reddit, with price targets of $50 and ratings of "overweight" and "buy," respectively. Piper Sandler views Reddit as an "iconic internet asset," while Roth MKM highlights its significance as the "front page of the Internet," justifying a premium valuation.

Despite its IPO pricing at $34 per share, Reddit's share price has dipped below its debut level of $47. The platform gained significant attention during the 2021 "meme-stock" saga, where retail investors congregated on its "wallstreetbets" forum to collectively invest in heavily shorted stocks like GameStop.

Earlier this month, brokerages Baird and Bernstein also initiated coverage on Reddit, reflecting the growing interest and scrutiny surrounding the platform's performance in the public market.