Reddit (RDDT) wants you to take a dive.
We're not talking about a prizefighter faking a knockout and intentionally hitting the deck, like Marlon Brando in "On The Waterfront," who famously coulda been a contender.
Related: Analysts kick off Reddit stock price coverage after quiet period
No, we're talking about the social media platform's slogan, which cordially invites people to "Dive into Anything"--and many of them do just that.
Founded in San Francisco in 2005, Reddit enables registered users to submit content such as links, text posts, images, and videos, which other members vote up or down.
Posts are organized by subject into user-created boards called “communities” or “subreddits.”
Many people may know Reddit from the 2021 meme-stock craze when a group of retail investors collaborated on the "wallstreetbets" forum to buy shares of highly shorted companies like GameStop (GME) , hoping to force short-sellers to buy shares to cover their bearish positions.
The story became the subject of the 2023 film “Dumb Money.”
Reddit went public in March, and the San Francisco-based company held its first earnings call as a public company in May.
Reddit CEO cites investments in AI
"We believe that great companies are built in the public markets, and we’re proud to have made the transition this quarter," Steve Huffman, Reddit's co-founder and CEO, told analysts during the call. "Our IPO was an important moment for the company."
The company posted a loss of $8.19 per share on revenue of $243 million while reporting 82.7 million daily active users for its first quarter, up from the 76.6 million expected by StreetAccount.
"More people are visiting Reddit than ever before," Huffman said. "Reddit is one of the largest places for authentic connection and conversation online, and more and more people are discovering and appreciating this."
Related: Reddit user makes $20,000 during stock's first day of trading
Huffman told analysts that the company's investments in machine learning and AI "will continue to improve relevance, engagement and moderation."
"We have and will continue to use machine learning to improve our ability to help users find communities they’ll love, which in turn increases engagement across the platform," he said.
A short time later, Redditt announced that it was teaming up with OpenAI to bring the platform’s content to ChatGPT, the virtual assistant that the Microsoft (MSFT) -backed artificial intelligence company developed and launched in November 2022.
OpenAI will bring Reddit content to ChatGPT and new products, helping users discover and engage with Reddit communities by accessing Reddit’s Data Application Programming Interface (API), which provides real-time, structured, and unique content from Reddit.
The company also recently announced a partnership program with major sports leagues, including the NBA, the NFL, Major League Baseball, and NASCAR.
Reddit users can access video highlights from games and tournaments, behind-the-scenes videos, its popular "Ask Me Anything" format, and other content the leagues post.
In February, Reddit said it was expanding its partnership with Alphabet's (GOOGL) Google "to make it easier to discover and access the communities and conversations people are looking for on Reddit."
The collaboration will give Google access to Reddit’s data API provide “Google with an efficient and structured way to access the vast corpus of existing content on Reddit,” while also allowing the company to display content from Reddit in new ways across its products.
Analyst warns shares could 'come under pressure'
404 Media reported on July 24 that Reddit has been blocking most of the internet's search engines from crawling and indexing its website—except for Google.
Reddit did not immediately respond to a request for comment, but a spokesperson told The Verge that "this is not at all related to our recent partnership with Google."
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The company is scheduled to post second-quarter results on August 6, and analysts have been adjusting their stock price targets ahead of the report.
Roth MKM analyst Rohit Kulkarni raised the firm's price target on Reddit to $67 from $61 and kept a buy rating on the shares ahead of the report.
The analyst said that he is raising its estimates to include contributions from the OpenAI deal but also warns that shares could come under pressure as IPO lockups expire on August 9, a reference to the period after a company goes public during which some early employees and investors aren't allowed to sell their shares.
In addition, Morgan Stanley raised the firm's price target on Reddit to $70 from $63 and kept an equal weight rating on the shares.
The firm previewed Q2 EPS for the North American Internet group, stating that Amazon (AMZN) remains its top mega-cap pick.
Bernstein analyst Mark Shmulik raised the firm's price target on Reddit to $50 from $45 while maintaining an underperform rating on the shares.
The analyst revised his near-term estimates tied to the OpenAI partnership announced in May higher. It expects the deal to bring 500 to 800 basis points of revenue contribution starting in the third quarter.
He said the second quarter's data continues to track well, with web traffic up 38% year-over-year and Google as the primary traffic source.
The real test for Reddit should come in the third-quarter when the company laps Google's algorithm changes affecting web traffic and ad dollars, Shmulik said.
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