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# FAIR VALUE PRICE TARGETS
There are a lot of noises surrounding Reddit’s fair value. Many people have offered their bullish and bearish opinions but very few are rooting their claims in quantifiable facts. I am delving into the numbers in detail in order to truly verify the fair value of Reddit.
To cut through the noise, I am getting the fair value by projecting out to 2030, estimating the revenue of each geographical segment. Based on the estimation below, I categorise Reddit’s fair value into 4 possible outcomes:l
# FAIR VALUE PRICE TARGETS
* **Ultra Bull Case (Max Limit, Very Very Unlikely): $638.22**
* **Very Optimistic Reasonable Case (Unlikely): $294.95**
* **Reasonable Case: $183.88**
* **Bear Case: $96.09**
Feel free to go through the step by step analysis below and provide feedbacks.
# FAIR VALUE CALCULATION (DECEMBER 2030 Projections)
Below represents the detailed breakdown of US, EU, and ROW (Rest of World) metrics for each scenario, discounted back to January 2026.
|Metric|Bear Case|Reasonable Case|Very Optimistic|Ultra Bull|
|:-|:-|:-|:-|:-|
|**--- US SEGMENT ---**|||||
|US DAU|60M|60M|60M|60M|
|US ARPU|$62|$102|$156|$312|
|US Revenue|$3.70B|$6.12B|$9.36B|$18.72B|
||||||
|**--- EU SEGMENT ---**|||||
|EU DAU|30M|30M|30M|30M|
|EU ARPU|$25|$40|$62|$124|
|EU Revenue|$0.74B|$1.20B|$1.86B|$3.72B|
||||||
|**--- ROW SEGMENT ---**|||||
|ROW DAU|70M|70M|70M|70M|
|ROW ARPU|$5|$8|$12|$25|
|ROW Revenue|$0.35B|$0.56B|$0.87B|$1.75B|
||||||
|**--- VALUATION ---**|||||
|Total Revenue as of 2030|$4.83B|$7.88B|$12.00B|$24.19B|
|5 year CAGR Growth (2025 - 2030)|17.0%|29.0%|40.4%|61.5%|
|Net Margins|30%|30%|30%|30%|
|Total Profit as as of 2030|$1.45B|$2.36B|$3.60B|$7.20B|
|PE Ratio|18x|23x|25x|28x|
|2030 Market Cap|$26.1B|$54.28B|$90.0B|$201.0B|
|**Jan 2026 Mkt Cap (PV)**|**$17.76B**|**$36.94B**|**$61.25B**|**$136.80B**|
|**PV of Cumulative FCF + Net Cash** |**$4.11B**|**$4.91B**|**$5.88B**|**$8.46B**|
|**Fair Value per Share**|**$96.09**|**$183.88**|**$294.95**|**$638.22**|
# ASSUMPTIONS
**Outstanding shares**
Based on fully diluted outstanding shares of 206.1 million (as of 2025) multiplied by a share dilution rate of 2% a year until 2030 (Management guided between 1% to 3%), which gives us 227.6 million outstanding shares by 2030.
**ARPU (Average Revenue Per User)**
ARPU is based on Ceiling ARPU. Ceiling ARPU is the theoretical maximum ARPU Reddit can reach. It is based on META’s estimated 2025 ARPU. The rationale for this is that Reddit is very unlikely to exceed META’s ARPU, given META’s unrivalled ad tech stack.
Since META stop disclosing geographical ARPU after 2023, we simply multiply 2023 ARPU by 1.2x, as META has grown revenue since, to get META 2025 ARPU.
***Reddit’s ARPU assumption per scenario:***
* **Ultra Bull Case ARPU** = META Full 2025 ARPU. This is very very unlikely as Reddit can never replicate META’s ad tech stack within a short 5 years, and may never will.
* Very optimistic Reasonable Case = 50% \* META 2025 ARPU. Twitter’s ARPU back in 2022 was half that of META’s. BUT it was an even higher percentage before 2022, but it stagnated and META continued to grow. Because ARPU is not guaranteed to keep growing without a really good ad tech stack, I consider this scenario to be very optimistic, and unlikely.
* **Reasonable Case** = 33% \* META 2025 ARPU. I consider a third of META’s ARPU to be reasonable. So far, Reddit manages to achieve strong ARPU growth but this is also due to a low base effect. Twitter or Snapchat also recorded rapid ARPU growth in their early stage but saturated and stagnated after a period of time. This tells us that without a proven ad tech stack, we wont really know if Reddit can achieve continuous ARPU growth like the Tier 1 players, Google and META. I m also listing down reasons why I think Reddit ARPU will remain below that of META.
* **Bear Case** = 20% x META 2025 ARPU. Reddit can no longer improve its ad conversion performance.
***Reasons why I think Reddit ARPU will remain below that of META:***
The negative reasons:
1. Reddit is text based scrolling, which is not that good for ads.
2. Reddit users has lower engagement duration compared to META users.
3. Reddit is anonymous, and has inherently inferior ad targeting capabilities.
4. Reddit users in ROW is fragmented, with multiple tiny local communities in each country, this makes it hard for ROW local advertisers to justify buying Reddit ads. I live in a Non-Western country with one of the biggest non-Western Reddit community, I have never seen a local AD. Whereas META and Google have tonnes of it.
5. Reddit users are anti Ads, takes a lot of experiment to get it right, dissuading advertisers.
The positive reasons:
1. Reddit allows niche targeting and interest-based targeting according the subs theme.
2. Reddit has a sizable user base that do not overlap with other social media platforms (30% to 70%, spending on which platform). To target these people, advertisers must advertise on Reddit.
**DAU**
End-2025 DAU:
**US:** 52.5 million
**EU** (estimated): 24.3 million
**ROW:** 44.6 million
Total DAU: 121.4 million
Reddit does not disclose EU DAU. The DAU is estimated from the 2024 data by WorldPopulationReview who collated data from Statista and Semrush. The data shows around 25% are from EU. However, I m just assuming 20% as ROW is growing faster than EU and US in 2025.
**DAU growth**
The reason I m not changing forecasted DAU for each scenario is because the DAU growth potential is pretty much fixed. The most important number is US DAU, EU and ROW DAU will not move the needle much. We know that US DAU is stagnating as Reddit appeals to a much smaller base of customers.
**Price to Earnings (PE)**
I consider the PE assigned to the stock to be highly intertwined with ARPU performance, which is in turn highly intertwined with Ad Conversion Performance. If Reddit can’t keep improving its ad conversion performance, it can’t grow ARPU fast, and it does not deserve a high valuation.
META’s PE has average at around 25 since 2017, despite consistently growing earnings by 25%+ a year, reflecting a PEG ratio of 1, meaning PE 25 is indeed the fair value for META. As such, the future growth rate will determine the acceptable PE.
* **Ultra Bull Case**
* Historical 5 years CAGR: 61.5%
* Future 5 years CAGR: 30%
* Assigned PE: 28
* **Very Optimistic Bull Case**
* Historical 5 years CAGR: 40.3%
* Future 5 years CAGR: 25%
* Assigned PE: 25
* **Reasonable Case**
* Historical 5 years CAGR: 29%
* Future 5 years CAGR: 18%
* Assigned PE: 23 (Note: PE should be higher than growth because Reddit is a high ROIC business; 20 is too low for a capital light business that is growing at more than 15% a year).
* **Bear Case**
* Historical 5 years CAGR: 17%
* Future 5 years CAGR: 10%
* Assigned PE: 18 (Note: 15 is too low for a capital light business that is growing at more than 8% a year).
**Present Value Discount Rate**
We use 8% as the discount rate.
**Present Value of Cumulative FCF**
We assume a reinvestment rate of 50% from 2026 to 2030. That leaves the other 50% of FCF that can potentially goes into share buybacks, which amounts to the cumulative FCF in the table.
**Net Margins**
We should assume industry average net margins, \~30%. While Reddit has shown it can deliver higher margins, it also has a strong affinity for share based compensation and I believe it is only healthy to spend on things like R&D and marketing expenses. Additionally, Q42025 net profit margin excludes income tax because it is benefitting from carry forward tax benefits. US tax is 21%.
# FACTORS LEFT OUT OF THE FAIR VALUE CALCULATION FOR SIMPLICITY SAKE
Factors leading to underestimation (upside risk)
1. **Growth in Ceiling ARPU.** This analysis assumes the ceiling ARPU stays stagnant from 2026 to 2030, despite the continued growth of online ad market. We could have underestimated the ceiling ARPU by 2030.
2. **Additional levers of DAU growth.** I am projecting stagnant US DAU because Reddit has already saturated the US market. However, Reddit can overcome saturation with two more levers of DAU growth: First, converting logged out users to logged in users, Second, converting MAU to DAU.
3. **Outstanding shares based on 2030.** I have calculated 2025 Fair Value per share by dividing discounted market cap by outstanding shares expected as of 2030. The reason for this is it is difficult to factor in the exact impact of the dilution in our current valuation framework.
Factors leading to overestimation (downside risk)
1. **Share dilution risk.** I think this is a big risk. I really do not understand what’s the management’s intention on this. They mentioned keep dilution rate per year at 1% to 3%. But that could mean a lot of things. Example, they can dilute the share base by 5% and then buy back 2% using FCF, resulting in 3% dilution. They also have a very big multi year share compensation package in 2024, this concerns me a lot as it may repeat in the future.
2. **Limited English Speakers outside US, Europe and India.** This means Reddit has a lower Total Addressable Market. I also note that most countries have their own internet forums that are entrenched in their respective societies.
3. **There is no certainty that Reddit can keep improving its ad conversion performance.** If Reddit fails to do that, stock will significantly rerate downwards.
4. **Net profit margin too optimistic.** I think this is a big risk. Q42025 net profit margin is 35%. However, on a normalized tax basis, meaning without the carryforward tax loss benefits, its Q42025 net profit margins is actually 28%. Additionally, it is hard to achieve significant growth without really high R&D expenses. But I m too lazy to deal with it, so I m putting profit margin at 30%. I believe Redditors will also strongly disagree that I put it any lower. Personally, I would assume a lower net profit margin.
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