Reddit Shares Surge 14% Following Partnership with OpenAI

Shares of Reddit surged 14% on Friday after announcing a partnership with artificial intelligence firm OpenAI. This collaboration is expected to enhance user experiences on the platform through AI-powered tools and attract more advertising revenue.

Market Reaction and Stock Details:

The stock traded at $64.25 in premarket, nearing its highest closing price of $65.11, recorded in late March. This rise reflects investor optimism about the potential benefits of the new partnership.

The partnership, announced on Thursday, allows Reddit to leverage OpenAI’s technology to develop new tools and features. OpenAI’s ChatGPT platform will help integrate Reddit’s content in a real-time, structured manner. Additionally, OpenAI will become Reddit’s advertising partner.

Strategic Goals and IPO Promise:

Russ Mould, investment director at AJ Bell, highlighted that this deal aligns with Reddit’s IPO promise of capitalizing on AI opportunities. The aim is to enhance user experience and utilize Reddit’s content within AI language models, fulfilling strategic goals set during its IPO.

Reddit generates revenue primarily from advertising and is looking to diversify its income streams. In a February filing, the company stated that it intended to explore new monetization avenues, including creator tools and data licensing to third parties.

Existing Data Licensing Agreements:

Reddit already has data licensing agreements with undisclosed parties, which is expected to generate at least $66.4 million in revenue this year. These licenses allow third parties to access, search, and analyze data on the platform.

With over 80 million daily active users, Reddit remains a smaller player in the social media market. The company went public on the New York Stock Exchange on March 21, with shares increasing by 66% from their IPO price of $34 per share.

Context of the Partnership:

The partnership comes amid many lawsuits against OpenAI, with various firms alleging unauthorized use of their content for training large language models. Despite this, OpenAI has secured content licensing deals with several publishers, including the Associated Press and the Financial Times.

This partnership with OpenAI is expected to position Reddit favorably in the competitive social media landscape, potentially increasing user engagement and advertising revenue. Investors are optimistic about this collaboration’s strategic benefits and future growth opportunities.