BENGALURU JPMorgan and Morgan Stanley started coverage of Reddit with equivalent to 'hold' ratings, as they waited for clarity of the social media company's user growth, while staying bullish on ad revenue growth and artificial intelligence (AI) initiatives.

Shares in Reddit were up 0.88% at US$42.64 in pre-market trading.

While Reddit, which made its market debut last month, still relies on advertising for the vast majority of its revenue, it touted AI in its initial public offering (IPO) marketing roadshow as an area of growth.

JPMorgan started coverage of Reddit with a 'neutral' rating and a US$47 target price, while Morgan Stanley initiated with an 'equal-weight' rating and a US$45 target price.

"DAUq (daily active unique users) growth has accelerated in recent quarters, and there is meaningful headroom for growth, but for now Reddit's base of 73 million users is relatively sub-scale," said JPMorgan analysts led by Doug Anmuth in a note.

"Valuation leaves us on the sidelines, as we wait for evidence of outsized user growth and faster execution," said Morgan Stanley.

Morgan Stanley, Goldman Sachs, JPMorgan and Bank of America were among over a dozen underwriters for the IPO, all of whom had to wait until mid-April to start coverage as required by industry practice.

With a US$50 target price, both Piper Sandler and Roth MKM were the most bullish on the stock with 'overweight' and 'buy' ratings respectively.

Piper views Reddit as an 'iconic internet asset', while Roth said Reddit, which is regarded as the 'front page of the internet', deserves a premium valuation.

Reddit's share price has already fallen below its debut price of US$47. The San Francisco-based firm priced its IPO at US$34 a share, the top of its indicated price range.

Reddit's popularity rose to new heights during the 'meme-stock' saga of 2021, in which a group of retail investors collaborated on its forum 'wallstreetbets' to buy shares in highly shorted companies like GameStop.

Earlier this month, brokerages Baird and Bernstein had initiated coverage of Reddit.

  - Reuters