Reddit shares jump after OpenAI partnership deal

Ayush May 17, 2024

(Reuters) — Shares of Reddit rose 14% on Friday, following a partnership with artificial intelligence firm OpenAI that is expected to draw in more users for the social media platform with AI-enhanced experience and attract more advertising revenue.

The stock was trading at $64.25 in pre-market trading, within touching distance of the highest closing price of $65.11 hit in late-March.

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 pact delivers on Reddit’s “IPO promise of seizing opportunities to make more of AI, whether that’s deploying the tech on its platform to improve the user experience or feeding its content into AI language models,” said Russ Mould, investment director at AJ Bell.

Reddit, which primarily generates revenue from advertising, is seeking to diversify its income streams. In a February filing, the company indicated its intent to explore new monetization channels, including offering creator tools and licensing its data to third parties.

Reddit already has data licensing agreements with undisclosed parties 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.

CEO of Reddit Steve Huffman reacts at the New York Stock Exchange (NYSE) to celebrate the company's initial public offering (IPO) in New York City, U.S., March 21, 2024. REUTERS/Brendan McDermid — CEO Steve Huffman at the NYSE to celebrate Reddit’s IPO on March 21, 2024. (REUTERS/Brendan McDermid) (REUTERS / Reuters)

With a daily active user count of more than 80 million, Reddit is considered a smaller player in the social media market. The company went public on the New York Stock Exchange on March 21. Its shares have gained 66% from their IPO price of $34 a piece.

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.

(Reporting by Yuvraj Malik in Bengaluru; Editing by Shinjini Ganguli)