Reddit (RDDT) bounced back after a shaky post-IPO period, defying the odds for meme-stock favorites with a strong first-quarter earnings report. RDDT surged as much as 5% on Wednesday, May 8, showcasing just how optimistic investors feel about the company's future

Exceeding Expectations

Reddit's first earnings call as a public company was extremely positive for the company. The social media platform exceeded analyst expectations on both revenue and user growth. Revenue projections for the current quarter came in at $240 million to $255 million, surpassing Wall Street's estimates of $228 million. Daily active users (DAUs) also impressed, hitting 82.7 million, a 9% increase from the prior quarter and exceeding analyst projections.

Analysts Upgrade Outlooks

Analysts are taking notice of this upward swing. Following the report, both Citi analyst Ronald Josey and JPMorgan analyst Doug Anmuth revised their previous outlooks on Reddit. Josey praised the company's "strong" first quarter and highlighted the "lasting" improvements in engagement trends. Anmuth, while maintaining a "Neutral" rating, raised his price target from $47 to $57, citing the potential for continued growth throughout the year.

The AI Opportunity

While advertising remains a key revenue stream for the company, Reddit's treasure trove of user data offers exciting possibilities. CEO Steve Huffman pointed to the company's vast database of "authentic conversation" as a potential driver of future growth, mentioning that Alphabet (GOOG) already pays for access to this data. This data could be particularly valuable for training large language models (LLMs), a burgeoning field in artificial intelligence.

Analyst Seeks Alpha in AI Data Licensing

Needham analyst Laura Martin sees Reddit's data as a major upside factor. Adding Reddit to their "conviction list" with a Buy rating and $63 price target, Martin highlights the potential for licensing data to train next-generation AI models. She argues that Reddit's "high-quality data at a similar scale" gives the company significant "pricing power" in this emerging market.

The Road Ahead

While the path to AI data licensing deals remains unclear, Reddit is well-positioned to capitalize on this potential. Huffman acknowledged increased interest in Reddit's data and hinted at ongoing discussions with potential partners. However, he cautioned that these deals are still in the early stages.

Overall, Reddit's first earnings report as a public company has boosted confidence in investors and analysts alike. The company's focus on user engagement, combined with the potential of its data in the AI revolution, positions Reddit for long-term growth.