Shares of Reddit (NYSE:RDDT) soared by 13% on Friday following the announcement of a partnership with artificial intelligence firm OpenAI, signaling potential growth in advertising revenue for the social media platform.
The surge propelled Reddit’s stock to $63.64, nearing its record closing price of $65.11 from late March, potentially adding $1.2 billion to its market capitalization.
The collaboration, unveiled on Thursday, enables Reddit to leverage OpenAI’s technology to develop tools and features, integrating Reddit’s content with OpenAI’s ChatGPT platform in real-time and structured formats. Additionally, OpenAI will serve as an advertising partner for Reddit.
Piper Sandler lead analyst Thomas Champion estimated that the partnership could generate between $50 million to $60 million in annual revenue for Reddit.
With over half of analysts covering the stock issuing a “buy” or higher rating and a median price target of $63, the deal aligns with Reddit’s commitment to capitalize on AI opportunities since its IPO, as noted by Russ Mould, investment director at AJ Bell.
Since its debut in March at $34 per share, Reddit’s stock has surged nearly 90%, reflecting investor optimism in the platform’s growth potential.
In February, Reddit outlined plans to diversify revenue streams beyond advertising, including offering creator tools and licensing data to third parties. Already, Reddit has undisclosed data licensing agreements projected to contribute at least $66.4 million in revenue this year, allowing third parties access to platform data for analysis.
Amidst a backdrop of increasing legal actions against OpenAI related to unauthorized content usage for training language models, the company has recently secured content licensing deals with prominent publishers such as the Associated Press and the Financial Times.
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