Stock Market

Now That the IPO Dust Has Settled, Is It the Right Time to Buy Reddit Stock?

Reddit stock (NYSE:RDDT) debuted in late-March, and received quite the welcome from early investors. The stock surged to a high of nearly $75 per share just days after its IPO, but has since come back down to earth. Reddit stock currently trades around $40, slightly lower than the $47 per share the company went public at initially.

At this level, investors are able to get in at a cheaper price that IPO buyers. So, the question is whether this social media giant is worth buying at a relative discount. It’s a tricky question, to be sure.

Let’s dive into what investors should make of this recent price action with Reddit, and where the company may be headed from here.

Licensing Deal with Google

Reddit has reportedly partnered with Google to provide content to train the search engine’s AI models. Valued at approximately $60 million annually, the deal reflects Reddit’s efforts to diversify revenue ahead of its stock market debut. This move comes amid tough competition for ad revenue from platforms like TikTok and Meta’s Facebook.

Unnamed sources revealed the details of this partnership, and both Reddit and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) chose not to comment. Reddit’s first major AI deal after last year’s API revenue strategy. Reddit, aiming for IPO, prepares financial disclosures.

The advanced partnership between Google and Reddit goes beyond platform integration. Google gains full access to Reddit Data API, utilizing Reddit’s vast content to enhance its products and train AI models. This raises concerns among users about privacy and data usage.

Since Pinterest’s (NYSE:PINS) in 2019, Reddit stock has been the first significant social media firm to release an IPO. AI developers are securing content deals to broaden training data, potentially facing copyright challenges.

Reddit’s Post-IPO Earnings

Reddit Inc. announced its first post-IPO earnings report on May 7, involving users by answering questions from r/RDDT subreddit alongside analysts’ queries. This user engagement mirrors its IPO, where power users were offered shares. It underscores Reddit’s valuation driven by its strong user involvement.

In an atypical move for a tech firm, Reddit’s IPO reserved a substantial share for its users int he company’s IPO, acknowledging their role in its success. CEO Steve Huffman emphasized Reddit’s community-driven ethos, expressing a desire for users to share ownership.

He also expressed a desire for users to have tangible ownership, inviting them to purchase shares alongside investors in the IPO.

Give Reddit Stock a Chance

A hub of diverse user-generated content, Reddit provides rich data for third-party AI companies to train their models. The company’s strategy differs from many of the ad-focused social media platforms out there. And there’s something to be said about user engagement – Reddit has a ton.

Of course, the ability for the company to monetize its user base isn’t a simple one. There will be bumps in the road to future growth. But I do think this company is willing and able to take the needs of shareholders seriously. In the world of social media stocks, Reddit is one that may be worth a speculative bet at current levels.

On the date of publication, Chris MacDonald did not have (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 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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