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Reddit stock jumps after OpenAI partnership

CNA – Shares of Reddit rose 13 per cent on Friday, following a partnership with artificial intelligence (AI) firm OpenAI that is expected to boost advertising income for the social media platform.

The jump pushed the stock up at USD63.64, within striking distance of the record closing price of USD65.11 hit in late-March, putting the company on track to add USD1.2 billion to its market capitalisation.

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 USD50 million to USD60 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 USD63.

The deal delivers on Reddit’s “initial public offering promise of seizing opportunities to make more of AI”, said investment director at AJ Bell Russ Mould.

A trader wears a T-shirt with Reddit’s logo at the New York Stock Exchange in the United States. PHOTO: CNA

The company’s shares have gained nearly 90 per cent since their debut in March at USD34 a piece.

In a February filing, the company indicated its intentions to explore new monetisation 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 USD66.4 million in revenue this year. The license allows third parties to access, search, and analyse data on the platform.

The deal comes amidst a growing number of lawsuits against OpenAI, with firms alleging unauthorised 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.