Why Analysts Are Betting Big on Reddit Stock’s Future Growth


  • Shares of Reddit (RDDT) stock have had a bumpy ride, to say the least, since its recent IPO. 
  • The company’s first earnings report following its initial offering has been released, with many impressed by the numbers.
  • Recent AI developments could point to further upside for this intriguing social media company. 
RDDT stock - Why Analysts Are Betting Big on Reddit Stock’s Future Growth

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Amid social media upheavals, Reddit (NTSE:RDDT) continues to thrive as a platform. RDDT stock faced backlash over IPO expenses and developer pricing changes after going public in March. Collaborations with OpenAI and Alphabet (NASDAQ:GOOG) for AI integrations signal Reddit’s strategic evolution amid market competition.

RDDT’s recent momentum stems partly from licensing agreements with AI firms, including Altman’s OpenAI, making it an intriguing AI data play. Despite its high price-to-sales ratio, Altman’s substantial stake underscores Reddit’s potential as an AI-centric platform.

OpenAI and RDDT Stock

OpenAI secured real-time Reddit data access, integrating discussions into ChatGPT and other tools. A deal akin to Reddit’s Google pact, it fosters AI-driven enhancements. OpenAI also joins Reddit as an advertising partner. Community reaction awaits, given past API-related protests.

The blog post announcing the partnership didn’t disclose financial terms or details on training data. Unlike Google’s deal, Reddit didn’t specify providing training data. Although OpenAI’s CEO is a Reddit shareholder, the partnership was independently approved. Reddit’s CEO emphasized its value in connecting people and communities.

Previously, the company showed hostility toward data-scraping for AI training, considering blocking Google web crawlers. OpenAI also warned r/ChatGPT moderators for using its logo without permission, citing copyright infringement.

Recent Earnings Report

Reddit’s inaugural post-IPO earnings announcement delighted investors. The company posted $243 million in sales, surpassing expectations, with a loss of $8.19 per share. Year-over-year, sales surged by 48%, reaching 82.7 million daily active users, while average revenue per user rose by 8% to $2.94.

Reddit posted a net loss of $575.1 million, mainly attributed to stock-based compensation expenses totaling $595.5 million due to its IPO.

Forecasting a revenue range of $240 million to $255 million for Q2, Reddit anticipates approximately 32% growth year-over-year. Established in 2005 by Alexis Ohanian and Steve Huffman, Reddit hosts numerous online forums.

In May, Huffman stated, “We see this as the beginning of a new chapter” as Reddit commenced trading on the NYSE under the symbol “RDDT” in March. Initially priced at $34 per share, the IPO valued Reddit around $6.5 billion. 

Buy and Hold RDDT Stock

Reddit achieved a successful IPO, pricing shares at $34, raising $519 million, and valuing the company at $6.5 billion. The offering included 15.28 million shares from Reddit and 6.72 million from existing shareholders. It marked the first major social media IPO since Pinterest in 2019. 

Despite delays due to the pandemic, RDDT stock debuted strongly and maintained its gains amid initial volatility.

Integrating AI technologies, particularly through the company’s recent OpenAI partnership, offers significant growth potential the market appears to be pricing in. Given these factors, a bullish stance on Reddit stock seems prudent. To me, it’s a compelling buy.

On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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