Here's why Reddit has more room to grow: Analyst

Shares of Reddit (RDDT) are up almost 25% since its IPO debut in March. Needham & Company senior entertainment and internet analyst Laura Martin raised her price target for the company from $63 to $75, citing its new AI deal and more.

Martin joins Catalysts to give insight into her call and explain her belief that the social media company has more room to grow.

Martin argues Reddit will gain even more from future deals with other tech companies: "So the margins here are 90% when they do one of these licensing deals and they already have a $200 million deal with Google (GOOG, GOOGL) ... And then they just got another $200 million deal from OpenAI, Sam Altman's company that Microsoft (MSFT) is the big investor in. I expect all the Amazon (AMZN) large language models and the Meta (META) large language models to also license the Reddit conversations to keep up with changing English real quickly."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Nicholas Jacobino

Video transcript

It shares are up over 20% since the company's public debut.

Back in March.

Our next guest though thinks there's more room to run hiking.

Her price target on Reddit from $63 to 75 on the heels of its new open a deal along with some upcoming data licensing agreements as well.

Joining us to discuss, we've got Laura Martin, she's N and co is a senior media and internet analyst.

Laura, thank you so much for being here.

Let's talk about Reddit because as we mentioned, you rose, your estimates and price target on the name.

What is the single biggest driver of that upgrade uh other revenue which is their generative A I licensing fees.

So they do about 100 of 1 million conversations a day and 7 million comments.

And all of these gen a large language models need to not only understand pop culture, English when you ask them a question, but they need to answer in a way that sort of keeps up with the change in English language.

And so the best place for real human conversations is the Reddit daily update of these uh real conversations in real English.

Yeah, we have these continued conversations on our show about where you see A I plays that make sense and are really fueling company fundamentals versus just kind of a mention of A I on an earnings call.

It sounds like for you, the A I play with Reddit is one that could lead to a fundamentally better business, I think.

So, the margins here are 90% when they do one of these licensing duels and they already have a $200 million deal with Google or, or alphabet.

I guess their LLM is called Gemini over at alphabet.

And then they just got another $200 million deal from open A I Sam Waldman's company that Microsoft is the big investor in.

I expect all the Amazon large language models and the meta large language models to also license the Reddit conversations to keep up with changing English real quickly.

How concerned are you about the saturation of Reddit users so far?

You know, they're, they're going global, about 50% of their users are global and they're acceleratingly adding users.

Um So their user growth is like doubled in the last two years.

So all of that bodes well for more users coming on board, which gives you more, more conversations which should be a flywheel to track the next user.