Reddit investors shrug off hold rating, bid up stock another 9% as post-IPO rally continues
- Reddit shares rose almost 9% on Tuesday to close at $65.11 and are now up 92% since last week's IPO.
- Over 35 million Reddit shares changed hands on Tuesday, the most since 48.7 million shares were traded on the company's opening day on the market.
- New Street Research, the first analyst firm to issue a stock rating on Reddit, said it wouldn't change its $54 price target, and that it expects "volatility into the first earnings report."
Reddit's first stock rating among analysts was a hold. But the rally continued anyway.
The shares climbed 8.8% on Tuesday to close at $65.11. They're now up 92% since debuting on the stock market last week under ticker symbol "RDDT." It was the first social media IPO since Pinterest's offering in 2019.
Reddit and existing shareholders sold 22 million shares in the offering, raising almost $750 million combined. Over 35 million Reddit shares changed hands on Tuesday, the most since 48.7 million shares were traded on the company's opening day on the market.
Investors continued to snap up Reddit shares despite New Street Research issuing a neutral rating on the company "after the stock goes to the moon," analysts wrote in a note published on Tuesday.
The analysts said they wouldn't change their $54 price target, and that they expect "volatility into the first earnings report." The company hasn't scheduled its announcement yet, but New Street said it will likely come in May. Insiders are forbidden from selling shares until the post-IPO lockup period expires 180 days after the offering.
The New Street analysts wrote that "an OpenAI data licensing win is baked into the stock," implying investors see Reddit benefitting if it inks a licensing deal with the ChatGPT maker. Investors expect such a deal "to be added soon," they wrote, considering OpenAI CEO Sam Altman owns a significant stake in Reddit.
The company's market cap has swelled to about $12.3 billion as of Tuesday's close. Altman's shares are worth almost $800 million.
Although Reddit's core business is online advertising, the company has pointed to data licensing as a potential big revenue source. It also recently entered into an expanded partnership with Google, allowing the search giant to access more Reddit data to train its AI models.
However, the Federal Trade Commission is conducting an inquiry into Reddit's data licensing business.
"At first blush, it seems relatively benign, but it could be an overhang," the New Street analysts wrote, noting that the "FTC inquiry could slow the pace of new deal signings and will certainly require attention and time dedicated to addressing the inquiry."
Meanwhile, some Reddit users took to the company's subreddits on Tuesday to discuss the stock rally. A number of users, along with certain company employees and their family members, were part of Reddit's directed-share program and not subject to a lockup period, allowing them to collectively make millions of dollars by selling after the pop.
One Reddit user with the username "bkarp00" wrote, "Looks like all the quick cash IPO people out are helping it rally today with less people willing to sell at these levels," referring to shareholders who believe that Reddit's stock will continue to increase in value.
User "IrishRun" wrote, "I've been kicking myself for not buying more shares, but there was no guarantee I would have received the requested number and then I would probably still be wishing I'd bought more."
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