Morgan Stanley analysts started covering Reddit (NYSE:RDDT) with an Equalweight rating and a price target of $45. The bank appreciates Reddit's unique position as a genuine platform with numerous communities, presenting an appealing offering for users and advertisers.

They recognize potential for ad revenue growth through innovative strategies and performance enhancements, along with a promising high-margin data licensing opportunity. The company's established AI-based data licensing business could contribute significantly to growth, with around $200 million in contracted revenue over the next three years.

The analysts project a compound annual growth rate (CAGR) of about 21% in ad revenue from 2023 to 2027. Despite Reddit's impressive gross margins of over 85% and potential leverage across research, sales, marketing, and general expenses leading to projected 22% adjusted EBITDA margins by 2027, Morgan Stanley remains cautious, awaiting further evidence of accelerated user growth or more rapid execution before adjusting his stance.