BUZZ-Street View: Reddit's ad model to boost profit, no major risk from Google algorithm

Reddit RDDT.N missed market estimates for daily active unique visitors in the fourth quarter on Wednesday, hit by a change in Google's search algorithm

Shares of the social media firm down 10.4% to $194.1 in premarket trading

GOOGLE ALGO BLIP DIP IS TEMPORARY

Citigroup ("Buy," PT: $220) says changes in Google algorithm temporarily impacted logged-out daily active unique visitors

Adds Reddit "scrollers" are benefiting from improved machine learning ranking and feed personalization, while "seekers" append "Reddit" to Google Search queries and are increasingly searching on platform

Morgan Stanley ("Overweight," PT: $210) bets on Reddit's advertising and engagement innovation pipelines; believes the company has better segmented user cohorts (scrollers vs seekers) and continues to improve its features to better the search experience

J.P.Morgan ("Neutral," PT: $185) sees RDDT achieving strong revenue and profitability growth from diversified ad formats, but notes risks from potential changes in Google's search algorithms

BoFA ("Neutral," PT: $190) said Reddit has untapped assets like ads in comments, search ads, and video ads, which warrant a higher multiple vs peers, but expects ad growth deceleration in 2H, a valuation risk

Growth outlook remains strong given AI opportunity around Reddit content, rapidly growing international users, untapped assets & potential for higher ad pricing, adds Bofa