Reddit stock jumps after OpenAI partnership

FILE PHOTO: A trader wears a t-shirt with Reddit's logo, at the New York Stock Exchange (NYSE) in New York City, U.S., March 21, 2024. REUTERS/Brendan McDermid/File Photo

(Reuters) -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.

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

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