Reddit (RDDT) may have mixed exposure to the evolving ecosystem called the "World Wide Website," where user engagement consolidates around a handful of generative artificial intelligence tools powered by large language models, RBC Capital Markets said in a note emailed Tuesday.
The company has strong potential to significantly grow revenue by increasing user engagement, boosting advertising load, expanding monetized surfaces, and improving its advertising technology, according to the note.
RBC said that Reddit's biggest variable is growth in logged-in users in the US and this metric underpins the health of engagement and monetization opportunities.
The firm expects the rise of GenAI tools could threaten platforms like Reddit by disrupting user discovery and top-of-funnel traffic.
RBC initiated Reddit's coverage with a sector perform rating and $125 price target.
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