What Happened?
Shares of online community and discussion platform Reddit (NYSE: RDDT) jumped 5.5% in the morning session after bullish analyst price target hikes and growing optimism over its AI data licensing strategy improved market sentiment.
JMP Securities reiterated its Market Outperform rating and lifted its price target on the stock to $300 from $225. Similarly, Piper Sandler maintained an "Overweight" rating and raised its price target to $290 from $210. The positive sentiment stemmed from reports that Reddit was in discussions with partners like Google and OpenAI. The company looked to shift away from flat-fee content licensing deals, which currently brought in about $60 million annually from Google.
Instead, Reddit aimed for a new structure where it would get paid based on how much its content is used to train artificial intelligence models. This potential for a new, more lucrative revenue stream excited investors. A broader market rally, fueled by a recent Federal Reserve interest rate cut, also provided a supportive backdrop for tech stocks.
After the initial pop the shares cooled down to $279.33, up 4.8% from previous close.
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What Is The Market Telling Us
Reddit’s shares are extremely volatile and have had 63 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 3 days ago when the stock gained 1.3% on the news that Needham raised its price target on the stock to $300 from $215, while maintaining a Buy rating.
The research firm cited generative artificial intelligence (GenAI) and rising labor productivity as key reasons for its increased confidence and revised estimates for fiscal years 2025 and 2026. This positive analyst action follows a period of strong business performance for the social media platform, which saw advertising revenue grow 84% year-over-year in the second quarter, driven by a 50% increase in active advertisers. Other firms have also recently expressed bullish sentiment, with Jefferies raising its price target to $300 and Deutsche Bank increasing its target to $205, both maintaining Buy ratings.
Reddit is up 68.4% since the beginning of the year, and at $279.33 per share, has set a new 52-week high. Investors who bought $1,000 worth of Reddit’s shares at the IPO in March 2024 would now be looking at an investment worth $5,538.
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