Shares of Reddit (NYSE:RDDT) surged last week after the company announced a strategic partnership with ChatGPT maker OpenAI. Through the agreement, Reddit hopes to attract more users with AI-enhanced features. There are more than 80 million active daily users on Reddit, which is relatively small compared to other social media sites.
In addition, OpenAI is also going to be an advertising partner.
This deal accomplishes one of the key goals for Reddit, which is to diversify its income stream, thus making it a safer business to invest in for the long run.
On May 7, the company reported its first-quarter results with Reddit announcing both an impressive 37% increase in daily active unique users and a 48% year-over-year increase in revenue, which totaled $243 million. But with high operating costs and more expenditures relating to its initial public offering, the company incurred a significant $575.1 million loss during the period, which was far higher than the $60.9 million loss it posted in the same period a year ago. But its adjusted EBITDA was a positive $10 million this past quarter versus a negative $50.2 million in the prior-year period.
Reddit’s stock went public in March and it has been a bumpy ride for the social media stock since then. But with last week’s increase, the stock has risen by more than 30% since it began trading. At a market cap of around $10 billion, Reddit is still a fairly small social media company. If it can continue to find more ways to monetize its business, there’s potential for this to be a great buy.
