Reddit Inc (NYSE:RDDT) benefits from GenAI, or generative artificial intelligence, in three ways, according to analyst Laura Martin.
First, the San Francisco-based social media company is a "key beneficiary" of Google. The search engine now gives Reddit answers instead of links. This has led high-quality publishers to seek inclusion in Reddit's search results as a replacement for the traffic they lost from Google.
Second, Reddit is leveraging GenAI to automate translations offshore, thereby building its offshore communities faster, as "a critical mass of participants" is essential for generating local advertising revenues in each country.
Third, the company is in talks with OpenAI and Alphabet Inc's (NASDAQ:GOOG) Gemini. So far, it has been reporting "rapidly growing" revenue and free cash flow per full-time equivalent (FTE), which is a "lead indicator to share price appreciation," according to Needham.
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Martin maintains a Buy rating, while raising the price target from $215 to $300.
Martin’s Thesis: Nearly all CEOs believe that the quality of their employee base "is a key asset and upside value driver" and Reddit has grown its revenue/FTE and FCF/FTE significantly over the past 4.5 years, Martin said in the note.
RDDT Price Action: Shares of Reddit had risen by 3.31% to $262.25 at the time of publication on Monday.
Reddit went public on March 21, 2024, pricing its initial public offering at $34 per share, raising a total of $748 million for the company and its selling shareholders
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