Just over three months ago, the stock of the online platform Reddit made its debut on the US stock exchange NYSE. Since then, shareholders have been able to enjoy significant price gains.
On March 21, Reddit, the online forum that already caused a stir in 2021 with the WallStreetBets movement, went public. Since then, the stock has ignited a veritable price explosion: With a recent price of 69.40 USD, the NYSE-listed stock traded significantly above its initial price of 47 USD and its offering price of 34 USD (as of the closing price on July 10, 2024).
Reddit generates its revenue almost exclusively through advertising to its users. The more users the platform has, the higher the advertising revenue. In the first quarter of 2024, Reddit was able to report record user numbers, which further drove up the stock price.
With its first-quarter report, Reddit significantly surpassed market expectations. The EPS amounted to -8.19 USD, while experts surveyed by FactSet had previously anticipated a loss of 8.75 USD per share. Revenue of 243 million USD also exceeded analysts' estimates of 214 million USD.
The stock market particularly responded positively to the news that Reddit reported advertising revenues of $222.7 million, which was almost 40 percent more than the previous year's quarter. Additionally, the number of daily active users was significantly higher at 82.7 million by the end of the first quarter than the 76.6 million expected by analysts.
The resurgence of so-called meme stock investing is also likely to have had a positive impact on user numbers. This was triggered by the return of user Keith Gill, known as Roaring Kitty, who played a key role in the GameStop stock rally at the beginning of 2021. His optimistic analysis of GameStop brought the Reddit community r/wallstreetbets to the stock's attention in 2021.
Additionally, recent partnerships, including one with OpenAI, could help bring more traffic to the platform. Reddit and the Microsoft-backed AI company OpenAI plan to collaborate on content in the future. Content from Reddit forums is set to be included in OpenAI's developed chatbot ChatGPT. Furthermore, Reddit will allow the use of AI tools for its users and moderators. As part of this agreement, OpenAI will also become an advertising partner of Reddit in the future.
Since its IPO, Reddit's stock has recorded impressive price gains, reflecting the positive market reaction to strong quarterly results and strategic partnerships.
