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Let me preface by saying that I m a believer in Reddit. I have bought plenty of Reddit shares in recent days due to the drop. But I bought it knowing and accepting it is the fair value, because I understand the business. I know the value it brings to users and potential advertisers. I did not buy it while deluding myself that Reddit is going to be a multibagger.
If Reddit grows revenue at a CAGR of 30% from now until 2030, that implies Reddit’s current fair value is max 20% higher than $140, after discounting for discount rate. From 2022 to 2025, Reddit grew at a CAGR of 48%. That’s not going to continue.
If Reddit continues growing at 50% CARG, that means Reddit will achieve META’s level of ARPU by 2030. Even if that happens, the max fair value is about slightly more than double from current fair value, hardly a multibagger. And that’s impossible. Reddit is not META and is closer to X, Snapchat and Pinterest than it is to META.
Tier 2 social media like X, Snapchat and Pinterest all make a tiny fraction of META’s ARPU. Even YouTube, which has far higher quality content and ads than Reddit possibly can, has a lower ARPU than META.
Reddit also has limited potential user growth. Most people do not like to read text, most people do not like complex discussion, most people do not know the answers to questions posted on Reddit, most people do not speak English in the world, most people do not believe in social justice like liberal America.
Reddit also is too dependent on Google. Reddit app downloads is a fraction of even X and Snapchat. Don’t believe me? App Store recorded 18k reviews for Reddit App, and 321k for X, 28k for Snap and 102k for Rednote. This means most of Reddit’s traffic is from Google. Reddit App users are the most valuable to Reddit and yet the minority.
It is even worse for Google Play, in terms of for lifetime downloads. Reddit has a total of 212 million downloads, Pinterest has 1.4 billion, Snap has 3.82 billion, X has 1.77 billion. Go see apptally for this stats, it is created by a fellow Reddit user. This stats is the total cumulative downloads and excludes uninstalls. That means out of these numbers, the active app users is actually a tiny tiny fraction of the cumulative downloads.
In other words, I m saying we should manage our expectations. If you accept that you are buying Reddit at fair value because you understand and believe in the company, you will be happy. If you are buying Reddit hoping it will be a multibagger, you will be severely disappointed and you might even lose money if you decide to buy at much higher than current price. Look at all the investors who bought above $200, they were all burned.