Meta’s Scale AI deal is positive for Reddit - B. Riley

Investing.com -- B. Riley analysts see Meta’s recent investment in Scale AI as a bullish signal for Reddit’s future, highlighting the rising value of unique data sources in the artificial intelligence arms race.

“We view the AI-Meta transaction as a net positive for Reddit,” B. Riley wrote, citing Meta’s $14.3 billion purchase of a 49% non-voting stake in Scale AI, which implies a $29 billion valuation, double its previous mark. 

“The implied $29B valuation for Scale AI points to the intrinsic value of the company’s large and growing corpus,” the analysts said.

The firm explained that while Scale AI focuses on tagging and labeling data for model training, Reddit’s massive user-generated content base, including over 1 billion posts and 16 billion comments, represents a similarly high-value dataset, according to B. Riley.

“Reddit’s 10M daily posts+ user signals and a corpus of 1B+ posts/16B+ comments also offer a unique training dataset,” the analysts wrote.

Furthermore, the firm says Reddit’s value proposition is further strengthened by its independence.

B. Riley noted that Microsoft (NASDAQ:MSFT) and xAI are reportedly considering moving away from Scale AI post-deal, boosting the appeal of Reddit’s independent content. 

The firm highlighted that Reddit previously blocked Microsoft from scraping its platform, suggesting future licensing deals are possible.

“We believe the independence of Reddit’s dataset makes it all the more valuable for licensing,” they said.

Reddit’s fast-growing advertising business is also said to be gaining momentum. B. Riley forecasts $1.74 billion in 2025 revenue, up 47% year over year. 

“Given the implied $29B valuation for Scale AI, Reddit’s current EV of $24B looks relatively cheap to us,” they added.

Meta’s Scale AI deal “indicates the demand for training/pre-training data may be higher than we had estimated,” B. Riley concluded.