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Let me start by saying, yeah I’m bag holding this bitch and no this is not financial advice. My positions are 700 shares @181 and 8 June 16th 2028 $100 calls. This is all my money and 20k of margin, money that I made working and investing aggressively while living at home. Everything I have. My current qualifications are as follows
I’m currently unemployed and with great unemployment comes great free time to look at financials and listen to earnings calls.
I took a intro to wall street class highschool in 2020 and won the class paper trading competition by yoloing all my capital into AMD MSFT and TSLA
Now let’s get started, RDDT has been getting absolutely smoked this year. Worst performer in the WSB 2026 top picks by a good margin and one of the worst mid+ market cap performers period. Now if you just looked at their financial statements this would be interesting because well, they just posted their 6th straight quarter of 60%+ revenue growth, with Q1 2026 coming in 69% (nice) higher than last year. The reported 91.5% gross margin and 31% net margin last quarter, and cash position increased to almost 3B. These are not numbers of a struggling company, these are numbers of a company that’s just started getting the snowball rolling and is beginning to gain mass. I could go on about how fantastic this companies Financials look, and it’s my belief they will continue to improve. But why will they continue to improve?
# THE BUSINESS OF REDDIT
Reddit makes over 90% of its revenue from advertising and the remaining \~10% from data deals and Reddit premium. This isn’t some new sexy business, it’s a tried and true strategy with roadmaps laid out by some of the most successful companies in the world. Some executives that helped those companies scale now work on the executive team of Reddit to help them accomplish a similar quality of ads. Amit puntambekar will be the new CTO who’s prior experience includes 5 years in the AI/ML side of meta working on content recommendation.
Last earnings call Huffman was asked what parts of the business AI impacts, and Huffman responded with “all of them” and I think this is more true than people realize. It will help improve content feed recommendations, it will help with ad placement and drive lower CPA thus raising ad prices, it helps engineers be more efficient and other benefits. Everyone is wrapped up around AI deals which I do think they will continue and improve upon and I will mention later, but the fail to see the real AI tailwind is now Reddit can build an incredibly strong ad algorithm (increase ARPU) and content feed (increase frequency and engagement) without a ton of time or resources.
I have confidence in Reddits management to execute well on the content feed and ad improvements, I’ve definitely noticed the ad targeting improvements myself. The main reason (and part of the reason I think it’s unreasonable to compare this company to snap or Pinterest) is because Reddit knows not who you are in terms of what your name is or what block you live on, but they know what your interest, passions, and problems are just based off what subreddits you’re viewing. Reddit and snap have basically the same US ARPU and every snap user I’ve ever known just uses it to send nudes or sell drugs. Don’t you guys agree you’re worth more than a lame Snapchat user? Anyway, Reddit knowing who you really are allows them to better tailor the experience to you, and I believe that’s what the new CTOs goal is. With over 500m weekly users, but only about a quarter of that being daily users, increasing frequency is how they can continue to post 60%+ revenue growth quarters and maybe even 70+ if we continue strong arpu growth on top of this frequency growth.
# THE RISKS OF REDDIT
Alright so now that the glaze is done, let’s talk about some risk factors of Reddit. Because this week introduced some new ones to the table.
Risk 1. AI reduces people’s visits to Reddit. I think this is overblown, we have seen traffic steadily increase even with the roll out of new models. I could see this reducing certain types of traffic like explain like I’m 5 or like resume help subreddits? I suppose this can also go hand in hand with the next risk as well.
Risk 2. Google search changes announced the goal for a no click search engine. This is interesting because I do think of all the risks this one poses the greatest threat long term. But Google makes all their money from search and businesses paying for visibility so I’d be surprised if this actually went through but If they do it will reduce logged out traffic. While it won’t hurt the bottom line initially because the traffic from Google is low quality and has a very high bounce rate, it takes away opportunities to convert non engaged weekly users to a potential DAU. I’ll talk about this a bit more at the end when I speak of data deals.
Risk 3. Metas new Forums app. I’m gonna be honest with you guy, I don’t think anyone is leaving Reddit for forums. I don’t see this as a threat. Only reason threads gets any usage is because zucc funnels engagement from instagram to threads. That app also launched with a lot more excitement and truly explosive user growth and still didn’t kill X. He can do the same with Facebook to forums but they I don’t see them being a credible threat that will erode the user base at all. Maybe less engaged users that just visit from Google now and then could also click a forum thread or a Facebook loyalist will use it but I think the nearly 6% sell off this caused Friday is overblown.
# THE ICING ON THE CAKE
The data deals are the icing on the cake. The thing is they hedge on the lawsuits playing out in Reddits favor, but if they have a settlement with Anthropic and perplexity this could be a nice bump to the bottom line. And this is currently the more likely scenario. In addition, with the new changes that Google plans to implement I believe the will be paying a much higher price for the data when it comes up for renewal next year. Right now it was worth it to trade that higher up front fee for the traffic Google pushed through but if that stops then they should be charging Google every cent they can, which is likely way more than 60m. Should everything go right it’s possible Reddit sees 700m-1B in data licensing revenue in 2027, But if the courts throw out Reddits law suit it’s possible that the see 0 from this segment after the renewal. But with only a bit over 100m coming from this currently these data deals represent the icing rather than the cake.
# SO WHATS THE CAKE WORTH?
These numbers don’t include potential data deals. Also these are just estimates until q4 2027 because that’s around when I intend to sell my calls (assuming they’re still worth something). Keep in mind, Q1 revenue growth of 69% and 31% net income margin and 2025 growth> 2024 growth but I will still assume growth begins fading, but I will use these numbers as guides for my assumptions. Also this doesn’t include cash on hand which adds about $15 to the share price. Also this assumes 200m shares out standing which is the currently fully diluted count which has remained steady.
Bear case - growth fades from 69% in 2025 and no margin expansion in 2 years
2026 rev growth 45% (3.19B)
2027 rev growth 30% (4.15B)
2027 profit margin 31% (1.29B)
2027 share price @25x = $161.25
Base case - growth fades slower, slight margin expansion, I’d say the most likely scenario at least for this year.
2026 Rev growth 55% (3.41B)
2027 Rev growth 40% (4.77B)
2027 profit margin 35% (1.67B)
2027 share price @25x = $208.69
Bull case - growth rate barely fades y/y, margins continue expanding towards their goal of mid 40s and a slightly higher multiple backed by the higher growth.
2026 rev growth 65% (3.63B)
2027 rev growth 50% (5.45B)
2027 profit margin 40% (2.18B)
2027 share price @30x = $327
# FINAL REMARKS
Even if we assume Reddits growth rate drops by 25% this year and then a further 15% next year after a Q1 that was inline with last year, the stock still looks reasonable today even with a PE lower than its ever traded before. Not a slam dunk, but reasonable. With more realistic growth expectations the upside starts to become apparent. I’m not telling you to buy the stock, I actually think it probably has more downside in the near future. But I think that the app that we all use and love (okay maybe “tolerate”) might deserve a deeper look and a spot on your watch list. Invest in what you know, with a business model you understand and financials that back up the story, and holding through down turns because much easier, and maybe even a chance to average down.
TLDR: The Google and meta fud is overblown. Reddit is rock solid both in its core user base and its financials. Probably trades down for another week or 2 but this stock deserves a spot on your watch list.