Analysts initially rated Reddit stock as a hold. Nevertheless, the rally continued.
The stock rose 8.8% on Tuesday, closing at $65.11. They’re up 92% since its stock market debut last week under the ticker name “RDDT.” This marks the first social media IPO since Pinterest’s sale in 2019.
Reddit and existing owners sold 22 million shares in the transaction, totaling over $750 million. On Tuesday, more than 35 million Reddit shares were traded, the largest since 48.7 million on the company’s first day of trading.
Despite New Street Research’s neutral rating, investors continued to buy Reddit shares “after the stock goes to the moon,” analysts stated in a note published on Tuesday.
The analysts said they would keep their $54 price target and expect “volatility into the first earnings report.” The corporation has not officially scheduled its announcement, but according to New Street, it will most likely occur in May. Insiders are not permitted to sell shares until the post-IPO lockup period expires 180 days following the offering.
The New Street analysts said that “an OpenAI data licensing win is baked into the stock,” meaning that investors believe Reddit will benefit if it signs a licensing agreement with the ChatGPT developer. Investors expect such a deal “to be added soon,” given OpenAI CEO Sam Altman’s considerable interest in Reddit.
As of Tuesday’s end, the company’s market capitalization had reached approximately $12.3 billion. Altman’s shares are valued about $800 million.
Although Reddit’s principal business is online advertising, the firm has identified data licensing as a potential major revenue source. Reddit recently increased its cooperation with Google, giving the latter access to more data for training AI models.
However, the Federal Trade Commission is looking investigating Reddit’s data licensing business.
“At first blush, it seems relatively benign, but it could be an overhang,” the researchers stated, pointing out that the “FTC inquiry could slow the pace of new deal signings and will certainly require attention and time dedicated to addressing the inquiry.”
Meanwhile, some Reddit users used the company’s subreddits on Tuesday to discuss the price surge. A number of users, as well as select firm employees and their family members, were part of Reddit’s directed-share program and were not subject to a lockup period, allowing them to collectively profit millions of dollars by selling after the IPO.
One Reddit user named “bkarp00” remarked, “Looks like all the quick cash IPO people out there are helping it rally today with less people willing to sell at these levels,” referring to stockholders who expect Reddit’s stock will continue to rise in value.
A user named “IrishRun” stated: “I’ve been kicking myself for not buying more shares, but there was no guarantee I would have received the requested number and then I would probably still be wishing I’d bought more.”
Reddit investors shrug off hold rating, bid up stock another 9% as post-IPO rally continues
