Reddit Inc.’s impressive rise since going public last year has sparked investor optimism, especially as the social media platform prepares to release its earnings on Wednesday. Investors will be closely watching Reddit’s strategies to leverage its unique content, particularly through AI licensing deals.
Wall Street’s expectations have been elevated for newly public companies connected to artificial intelligence (AI), with Reddit and semiconductor company Astera Labs Inc. standing out for their significant stock price gains since their IPOs. Reddit’s stock has surged more than 500%, marking the best performance for a U.S. IPO that raised more than $250 million since late 2019. This performance has attracted attention as a potential indicator of how other AI-linked IPOs, like data-centre operator CoreWeave Inc., may perform.
The enthusiasm around Reddit stems from its ability to generate revenue from diverse sources beyond advertising, with a particular focus on licensing its data to train AI models. The company has secured data-licensing agreements with major companies, including Alphabet Inc.’s Google and OpenAI, enhancing its value proposition in the evolving AI market.
Following its last earnings report in October, Reddit’s stock saw a significant boost after the company exceeded projections. Analysts expect Reddit to report strong results for the latest quarter, driven by growth in daily active users and an increase in licensing revenue. B. Riley’s Naved Khan predicts solid performance, with Reddit maintaining its position as a top-performing hypergrowth platform if it continues to show growth and solid execution.
However, soaring valuations for AI-related stocks mean that even solid results may not always meet investor expectations. Astera Labs, for instance, exceeded expectations in sales and earnings but saw a stock decline due to disappointing gross margins. Reddit’s stock also experienced a slight dip in response to its own high expectations.
As AI-related IPOs continue to emerge, Reddit’s earnings report will be crucial in setting the stage for other upcoming public offerings, including CoreWeave and Northern Data AG’s potential U.S. listing. Investors are eager to see whether Reddit can maintain its momentum and capitalise on its AI licensing initiatives for future growth.
