Social media platform Reddit briefly soared more than 16% after announcing a partnership with Microsoft-backed OpenAI. Is Reddit stock a buy in today's stock market?
The social media site will give OpenAI access to Reddit's Data API, letting the artificial intelligence startup learn from Reddit content in real time. Reddit's platform will get AI-powered features. OpenAI and Reddit will be advertising partners.
The "OpenAI partnership suggests widespread demand for Reddit data," Deutsche Bank analysts said Friday in a client note. They boosted their price target for Reddit stock from 62 to 65 with a buy rating.
Shares are working on an IPO base with a 74.90 buy point. But investors could use Tuesday's high of 64.50 as an early entry. Reddit stock briefly soared more than 16% Friday before trimming gains to about 11% in afternoon trade. Shares traded around 62.60 a share, back below the buy point.
In recent weeks, Reddit reported quarterly results for the first time. Revenue came in above expectations, while the company's loss was not as bad as analysts feared.
Reddit said that it lost $8.19 per share on sales of $243 million. Analysts were expecting Reddit to post a loss of $8.75 per share from sales of $214 million, according to FactSet.
When Reddit went public on the New York Stock Exchange, shares soared as much as 70% beyond the 34 offering price. Reddit stock closed that day at 50.31, up 48%. The opening price gave Reddit a market value of about $6.4 billion. The IPO raised $748 million.
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Reddit Stock Fundamental Analysis
Reddit, founded in 2005, operates one of the world's largest and most active online message-board websites. The Reddit platform hosts a stockpile of 1 billion cumulative posts across 100,000 active communities, according to the Reddit IPO filing.
Reddit last year had sales of $804 million, up 21% from 2022. But the company lost about $91 million in 2023 and is yet to turn a profit. Reddit acknowledged in its IPO filing that it was slow to monetize its platform.
"We made a profit in the back half of 2023. We grew revenue three times as fast as costs last year," Reddit Chief Executive Steve Huffman said in a CNBC interview. "I think beyond the community of Reddit, the platform of Reddit, there is actually a very nice, special business here."
Reddit Stock Technical Analysis
Partly due to its short and volatile trading history, Reddit stock shows a weak 63 out of 99 IBD Composite Rating, according to the IBD Stock Checkup. The company's losses are another reason. The Composite Rating helps investors easily measure a stock's fundamental and technical metrics.
Reddit stock is working on an IPO base with a 74.90 buy point. But investors could use Tuesday's high of 64.50 as an early entry. Friday's gains place the stock in an aggressive buy area. The 5% buy area from that buy trigger runs up to 67.73.
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Insiders Sell Reddit Stock
In recent weeks, Reddit CEO Steve Huffman and other top executives and board members disclosed share sales, just a week after the social network had its initial public offering.
Huffman sold 500,000 shares on March 25 at an average $32.30 price, receiving $16.15 million. CFO Vollero Andrew sold 71,765 Reddit shares for $2.318 million. Chief Operating Officer Jennifer Wong sold 514,000 shares for $16.602 million.
Chief Technology Officer Christopher Slowe sold 185,000 shares for $5.975 million. And Chief Accounting Officer Michelle Reynolds sold 3,033 RDDT shares for $97,966. Board member David Habiger sold 3,000 shares for $102,000.
All told, that's $41.245 million worth of Reddit shares sold.
Is Reddit Stock A Buy Right Now?
Amid Friday's strong gains, the stock is in buy range past an aggressive entry. That means that Reddit stock is a buy right now, as long as it doesn't move out of the 5% buy area or fall back below the buy trigger. Other potential investors could decide to wait for the stock to hit the official buy point before purchasing shares.
For more leading stocks and stocks approaching buy points, check out IBD Stock Lists, like the Stocks Near Buy Zones. To see the current stock market trend, check out IBD's signature daily analysis, The Big Picture.
