KeyBanc Initiates Reddit Coverage With Overweight Rating, Cites AI Data Value

KeyBanc Capital Markets initiated coverage of Reddit (RDDT) with a bullish outlook, assigning the social media company an Overweight rating and a $225 price target. In a note to clients on Wednesday, the firm positioned Reddit as a "durable compounder" with significant growth potential tied to its advertising business and its unique role in the artificial intelligence ecosystem.

The Bullish Thesis

KeyBanc analyst Justin Patterson projects that Reddit's strategic investments in its community and ad monetization will fuel a sustainable business model. The firm forecasts a durable annual revenue growth rate of over 30% with a clear path toward achieving 50% EBITDA margins.

Key drivers for this optimistic view include:

• A large and expanding user base, which ended the first quarter with 127 million daily active users.
• An advertising model where over 40% of user activity demonstrates commercial intent.
• Reddit's increasing importance as a data source for training large language models (LLMs) like ChatGPT and Google's Gemini.

AI Data as a Key Catalyst

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KeyBanc highlighted Reddit's data licensing as a major value driver, calling it "a unique way to participate in AI growth with an asset-light business model." The firm believes the platform's vast and constantly updated human-generated content is becoming increasingly valuable for AI model training, which could create a significant "upside catalyst into 2027."

Reflecting this potential, KeyBanc's financial models are ahead of Wall Street consensus, particularly for 2028. The firm projects a 35% revenue compound annual growth rate (CAGR) from 2025 to 2028, with revenues reaching $3.24 billion in 2026 and $5.46 billion in 2028. EBITDA is expected to compound at an even faster rate of 48% annually over the same period.

Potential Risks and Headwinds

Despite the positive outlook, KeyBanc also acknowledged several risks for investors to consider. The firm noted that other digital advertising platforms have historically encountered a "growth wall" when reaching the $2.5 billion to $4 billion revenue range, a territory Reddit is now entering.

Additionally, the public nature of its data licensing negotiations with partners like Google could create a "near-term overhang" for the stock. The broader advertising market also remains cyclical, which could impact the company's growth trajectory.