After an explosive initial public offering (IPO) last week, Reddit (RDDT 7.02%) stock closed out this week's trading with more gains. The social media company's share price ended the shortened trading week up 7.2% from last Friday's market close, according to data from S&P Global Market Intelligence. Meanwhile, the S&P 500 index moved 0.4% higher across the stretch.
In addition to positive momentum for the broader market, Reddit gained ground thanks to expectations that the business could have underappreciated opportunities in the artificial intelligence (AI) space. The company has started to license its data for the training of large language models (LLMs), and the move could significantly improve the economics of the business.
Reddit surged early this week thanks to AI excitement
Before its public debut, Reddit filed an S-1 filing with the Securities and Exchange Commission that laid out key information about the business's performance, risks, and growth opportunities. In the filing, the company noted that it was looking to make a data-licensing a substantial new sales pillar.
Reddit said that it had already entered into contracts worth $203 million over the next few years to provide its data for application programming interfaces (APIs) and training LLMs. Of that amount, the company said it expects to record at least $66.4 million in data-licensing sales this year. It later came out that the company had entered into a data licensing contract with Alphabet worth roughly $60 million this year.
Thanks to excitement surrounding AI and opportunities to monetize its data, Reddit saw strong momentum early in this week's trading. At one point, the company's share price was up as much as 20.2% from the previous week's market close. But bearish comments from some analysts and insider selling caused the stock to lose some ground.
Reddit stock is seeing volatile trading
New Street initiated coverage on Reddit with a neutral rating and a price target of $54 per share, published on March 26. The firm's analysts argued that the potential benefits of the company's emerging data-licensing business were already priced into the stock. New Street's price target suggested significant downside potential at the time of the note's publication, but the target is actually significantly higher than the stock's current price of roughly $49 per share.
Hedgeye analyst Andrew Freedman also published a message on X, formerly Twitter, on March 27 saying that Reddit was a short candidate with 50% potential downside. The comments appear to have spurred sell-offs for the stock.
Adding another bearish factor in the second half of this week, key leaders at Reddit sold company shares. In filings made public through the SEC on March 27, it was revealed that CEO Steve Huffman, CFO Andrew Vollero, COO Jennifer Wong, and CTO Christopher Slowe had all sold shares on March 25. Altogether, the Reddit managers sold company shares worth roughly $41.1 million.
