Reddit’s High-Flying Run Faces AI-Training Data Test in Earnings
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(Bloomberg) -- Reddit Inc. shares have been on a tear since going public earlier this year, and the social-media company’s unique place in the artificial intelligence landscape will dictate whether the rally continues.
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The stock is up 139% since it began trading in March, the best performance among this year’s IPOs to raise at least $310 million, according to data compiled by Bloomberg. The next test of that rally will come with the Tuesday release of its third-quarter results.
Wall Street expects the company to report revenue growth of about 50% from the year-ago period. The analyst consensus for revenue has risen by 11% over the past three months. Reddit is expected to be profitable on an adjusted basis, though not in terms of net earnings per share.
A key focus of the report will be how much money Reddit expects to make by licensing its data to train AI models. It has signed data licensing agreements worth more than $200 million over the coming years, including with Alphabet Inc.’s Google and OpenAI.
The company made nearly all — 98.1% — of its 2023 revenue from advertising, and that continues to be its central business. However, Bloomberg Intelligence analyst Mandeep Singh expects licensing deals with AI companies that train their large language models on Reddit’s content to “further accelerate top-line gains.”
The company also “may continue to see a boost in its Google-driven LLM traffic,” Singh wrote last week.
Reddit shares were up 0.3% on Monday, having briefly touched an intraday high of $82.53 earlier in the day.
Reddit captured interest from investors looking for companies tied to AI. Its shares climbed 48% in its first day as a public company after raising $860 million. The gains for Reddit have only accelerated in the months since going public as it powered higher after restrictions preventing long-time investors from selling were lifted.
Reddit’s rise places it alongside other AI darlings like ARM Holdings Plc and Astera Labs Inc., which are among the top performing companies to debut since 2021. Shares of each have more than doubled since their IPOs. AI platform Cerebras and AI hyperscaler CoreWeave are among companies considering going public in the coming months.
Reddit’s second-quarter revenue topped expectations, contributing to the stock’s strong performance. Over the past six months, its gains have been roughly triple those of Meta Platforms Inc., the Facebook parent that is investing heavily in AI to improve ad targeting, among other functions. Meta is scheduled to report on Wednesday.