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I’ve been spending the past week putting into writing my thoughts on Reddit (RDDT), a position I’ve held since mid-2025. I believe Reddit is currently one of the most asymmetric tech plays of the decade.
Below the key investment pillars:
* **Ads implementation:** Following nearly two decades of sub-optimal or non-existent monetization, Reddit has successfully engineered a pivot toward performance-based advertising over the last three years, increasing the number of ad-slots on the platform, driving the revenue growth of 68% YoY as of Q3 2025 - a rate significantly outpacing social media peers such as Meta, Snap, and Pinterest
* **ARPU convergence:** With Reddit still is in the early stages of monetization, its average quarterly revenue per user (“ARPU”) stands at only USD 5 globally, which is far below Meta’s USD 14, despite Reddit being much more US centric. This highlights a massive runway for growth, where unlike Meta, Reddit does not need to invent the new industry; it merely needs to execute on the known monetization playbook of its rivals - improving ad load, targeting efficiency, and format diversity - to unlock massive upside
* **Users growth:** Reddit has historically been heavily US-centric, with approximately 44.5% of its Daily Active Uniques (DAUq) currently based in the US (51.6m out of 116m). With the recent deployment of machine-translation technology, the company is paving a way for a multi-year runway for organic growth, with international DAUq growing at 31% YoY as of Q3 2025, significantly outpacing the 7% growth in the US
* **The “human data” moat in an AI world:** As the open internet becomes increasingly saturated with AI-generated content and SEO-optimized “slop”, Reddit’s repository of over 20 years of authentic, human-generated conversation has transformed from a community asset into a scarce industrial commodity - a raw material for the AI models. This data provides optionality for a high-margin revenue stream through licensing agreements with hyperscalers and LLMs
* **Operating leverage and profitability:** While optically expensive at a trailing PE ratio of 120x, the company has passed a critical inflection point in its unit economics. Gross margins have expanded to a world-class 91.0%, with incremental EBITDA margins currently standing at 60%. As a result, only a year after-first profitable quarter, the company has already achieved a 40% adjusted EBITDA margin in Q3 2025, generating USD 185 million in operating cash flow
Q3 2025 financials snapshot:
|Metric|Unit|Q3 2025|Q3 2024|YoY Growth|Context|
|:-|:-|:-|:-|:-|:-|
|Total Revenue|mUSD|585|348|68%|Growth accelerated significantly from historical \~20-30% rates|
|Ad Revenue|mUSD|549|315|74%|Driven by improved ad tech (DPA/Max) and broader advertiser base|
|Other Revenue|mUSD|36|33|8%|Data Licensing. Stable growth as major deals (Google/OpenAI) are fixed-fee|
|Net Income|mUSD|163|30|443%|56% Incremental Net Margin - USD 133m of the USD 237m revenue growth flowed to Net Income|
|Adj. EBITDA|mUSD|236|94|151%|40.3% Margin. Demonstrates extreme operating leverage|
|Gross Margin|%|91.0%|90.1%|1%|Best-in-class software margins; hosting costs scale efficiently with text-based content|
|DAUq (Global)|millions|116|97|19%|Strong retention and international acquisition|
**Risks & valuation:**
Investing in Reddit is not without risk. Trading at \~17x run-rate revenues, the market expects flawless execution. The stock is volatile and sensitive to the ad market and AI search trends - it's not a stock for "paper hands."
However, for a long-term investor, I see a rare asset with clear future growth runway, built upon it's stong network effect moat.
**My Price Levels:**
Based on the similated "mature state" 2035, I have created a number of distinct valuation scenarios, with the following conclusion:
* **Strong Buy:** USD \~30bn Market Cap (USD \~$160/share)
* **All-in Buy:** USD \~20bn Market Cap (USD \~110/share)
* **Current Price (USD \~210):** Offers somewhat limited downside protection, hence buyers here need a high conviction in 50%+ growth or material upside from future LLM deals. I personally prefer loading up on the dips, which is how I built my position
|||**1**|**2**|**3**|**4**|**5**|**6**|**7**|**8**|
|:-|:-|:-|:-|:-|:-|:-|:-|:-|:-|
|**Item**|**Unit**|**Nuclear Case**|**Bear Case**|**Conservative Case**|**ARPU Case**|**DAU Case**|**Meta ARPU, 500m DAU Case**|**50% Meta Case**|**Meta Case**|
|||Zero growth beyond 2025F|ARPU and International DAU double, but no DAU growth in US|ARPU annd DAU double|ARPU converges to Meta's, DAU stays flat|DAU converges to Meta's, ARPU stays flat|ARPU converges to Meta's, DAU increases to 500m (1.5x US DAU, 6x Int. DAU)|Both DAU and ARPU converge to 50% of Meta level|Both DAU and ARPU converge fully to Meta level|
|||||||||||
|Entry mkt cap of USD 40bn||||||||||
|IRR 10x exit PE|%|**-14%**|**0%**|**4%**|**5%**|**16%**|**15%**|**18%**|**35%**|
|IRR 20x exit PE|%|**-11%**|**5%**|**10%**|**11%**|**24%**|**22%**|**25%**|**44%**|
|||||||||||
|Entry mkt cap of USD 30bn||||||||||
|IRR 10x exit PE|%|**-12%**|**2%**|**7%**|**8%**|**20%**|**18%**|**22%**|**39%**|
|IRR 20x exit PE|%|**-8%**|**8%**|**13%**|**14%**|**27%**|**25%**|**29%**|**48%**|
|||||||||||
|Entry mkt cap of USD 20bn||||||||||
|IRR 10x exit PE|%|**-8%**|**7%**|**11%**|**12%**|**25%**|**23%**|**27%**|**45%**|
|IRR 20x exit PE|%|**-4%**|**13%**|**18%**|**19%**|**32%**|**30%**|**34%**|**54%**|
|||||||||||
|**Implied 10y Revenue CAGR**|**%**|**0%**|**11%**|**16%**|**17%**|**31%**|**29%**|**33%**|**53%**|
|**Implied 10y Net income CAGR**|**%**|**0%**|**20%**|**26%**|**27%**|**42%**|**40%**|**44%**|**66%**|
I’ve also posted a full 17-page deep dive covering the specific ARPU math and the AI licensing "free call option" on my Substack, you can find link on my profile if of interest.