Shares of Reddit rose 13% on Friday, following a partnership with artificial intelligence firm OpenAI that is expected to boost advertising income for the social media platform.
The jump pushed the stock up at $63.64, within striking
distance of the record closing price of $65.11 hit in late-March, putting the
company on track to add $1.2 billion to its market capitalization.
The partnership, announced on Thursday, allows Reddit to
leverage OpenAI's technology to build tools and features, and OpenAI's ChatGPT
platform to integrate Reddit's content in a "real-time, structured"
manner. OpenAI will also become an advertising partner for Reddit.
The deal could yield more than $50 million to $60 million
annually for Reddit, Piper Sandler lead analyst Thomas Champion said in a note
on Friday.
More than half the analysts covering the stock have a
"buy" or higher rating, with a median price of $63.
The deal delivers on Reddit's "IPO promise of seizing
opportunities to make more of AI," said Russ Mould, investment director at
AJ Bell.
The company's shares have gained nearly 90% since their
debut in March at $34 a piece.
In a February filing, the company indicated its intentions
to explore new monetization channels beyond advertising revenue, including
offering creator tools and licensing its data to third parties.
Reddit already has data licensing agreements with
undisclosed firms that are projected to contribute at least $66.4 million in
revenue this year. The license allows third parties to access, search, and
analyze data on the platform.
The deal comes amidst a growing number of lawsuits against
OpenAI, with firms alleging unauthorized use of their content for training
large language models.
In recent months, OpenAI has also secured content licensing
deals with several publishers, including the Associated Press and the Financial
Times.