The Case on Reddit Stock (RDDT)

For a couple of weeks I've been analyzing & reading Reddit stock filings due to the noise from everywhere and honestly here are my 2 cents. **TL;DR** Reddit's Q1 2026 was objectively strong: revenue grew **69%** YoY, operating margin reached **27.6%**, and EPS jumped to **$1.01**. The key driver wasn't user growth (**+17%**) but monetization, with ARPU rising **44%** YoY. The bull case: Reddit is proving it can monetize its user base far better than expected, international users are growing quickly, and profitability has inflected. The bear case: User growth is steadily decelerating, **\~94%** of revenue still comes from advertising, much of its traffic depends on Google search, and the highly discussed AI licensing business is still only **\~6%** of revenue. At **\~$35B** market cap (**\~14x** TTM sales, **\~50x** TTM earnings), the debate isn't whether Reddit is a good business anymore, it's whether future growth is strong enough to justify today's valuation. **Personally I think the investment case depends much more on continued ARPU expansion than AI licensing for now. The core advertising business is what justifies the valuation. I'll keep tabs on future updates on the direction of AI licensing as it presents an interesting but speculative upside option.** **Profitability inflected** Q1 2026 vs Q1 2025: * Total revenue **$663,411K**, up **69% YoY** * Income from operations **$182,912K,** a **27.57%** operating margin, up from near breakeven (**$3,903K**) a year ago * Net income **$203,981K**; diluted EPS **$1.01** (vs $**0.13**) One honest flag: net income (**$203,981K**) is higher than operating income (**$182,912K**) because of **$22,816K** of other income, which the MD&A says "consists primarily of interest income" on their post-IPO cash, plus an unusually low tax bill of just **$1,747K** (**\~0.85% effective rate**). The cleaner profitability read is the **27.57%** operating margin, not the headline EPS. **What's driving it: monetization, not users** * DAUq (Daily Active Uniques) **126.8 million**, **+17%** YoY, but the growth rate is unfortunately decelerating hard. Last 8 quarters of YoY DAUq growth: **51%** → **47%** → **39%** → **31%** → **21%** → **19%** → **19%** → **17%.** * ARPU (Average Revenue Per User) **$5.23**, **+44%** YoY, this is the real engine. They're earning far more per user, not just adding users. * Still **\~94%** advertising (**$624,670K** of **$663,411K**). International is the runway: rest-of-world weekly users **+33%** vs US **+10%**, but those users monetize at a fraction of US ARPU. **The biggest structural risk is Google!** A large share of Reddit's users are logged-out visitors who arrive from search, and the 10-Q is blunt about it (Item 1A, Risk Factors): > "We rely, in part, on internet search engines, such as Google, to generate traffic to our website, primarily through free or organic searches." >"Changes in internet search engine algorithms and dynamics could have a negative impact on traffic for our website." The MD&A adds that "**visitors that come to Reddit from search engines are generally not logged in**" (this was also my case until recently lol), so the faster-growing, Google-fed cohort is also the lower-monetizing one, and it's at the mercy of Google's ranking changes. There's a second-order AI threat too. The filing warns users may use AI tools "instead of visiting Reddit directly." So Google is simultaneously Reddit's **biggest traffic source**, **a cloud vendor**, a **data-licensing customer**, and (via AI Overviews) a **substitution threat**. This is what scares me the most tbh. **The AI data-licensing angle is real, but small and unproven** Everyone's excited about Reddit licensing its human conversation corpus for AI training. The actual numbers (10-Q notes): * "Other revenue" (mostly content licensing) was **$38,741K** in Q1, up just **15% YoY** vs advertising **+74%**. So it's **\~6%** of revenue and growing slower than the rest. * Contracted licensing backlog (remaining performance obligations >1yr) = **$120.6M**, of which they expect to recognize **$91.6M** in the rest of 2026 and only **$29.0M** in 2027. Front-loaded and running off fast, not a multi-year annuity yet. * Management's own words: "We are in the early stages of our content licensing efforts... There is no assurance that we will be able to sustain revenues from these efforts." The interesting kicker is enforcement, Reddit says it has "commenced litigation" against firms that "constructed very large commercial language models using Reddit content without entering into a license agreement." High-value scarce data, but monetizing it should be considered as a medium risk, unpredictable "bonus" if we may say. **Where the big money actually moved (13F filings, positions as of March 31, 2026)** This part is usually my favorite part to inspect. Among the largest managers that file 13Fs, we see different behaviors between long term / short term investors: * Accumulating: Vanguard added every quarter since its 2024 IPO (eight straight!) (**1.67M** → **13.79M** shares). BlackRock grew from **4.87M** → **7.66M** shares (\~**+57%**). Baillie Gifford, a long-horizon growth shop built a brand-new **\~7.31M**\-share position from almost nothing in early 2025. * Heading for the exit: Fidelity, once the single largest holder at **\~13M** shares, cut it to **2.92M,** down **\~78%** over two quarters. Coatue more than halved (**6.53M** → **2.79M**). D.E. Shaw drifted lower. So it's real long-only index/growth money adding while several active funds bail, not a one-way tape. (13Fs only capture large institutional filers and reflect March 31 positions, so this isn't every owner or fully current, but the direction of the biggest ones is informative.) **Valuation** At **\~$174.96 (June 18 close)**, market cap is roughly **$35.3B** (**≈202M** diluted shares). On a trailing-twelve-month (TTM) basis through Q1 2026 (Q2 2025 + Q3 2025 + Q4 2025 + Q1 2026): revenue **$2,473,556K**, net income **$707,544K**, diluted EPS **$3.50**. * P/E (TTM) ≈ 50x ($174.96 ÷ $3.50) * P/S (TTM) ≈ 14.3x ($35.3B ÷ $2.47B revenue) (Note: this TTM figure differs from full-year 2025 revenue of $2,202,506K, TTM rolls in the strong Q1 2026 and drops the much smaller Q1 2025, a +$271M swing.) These are rich multiples, but they compress fast if the \~50–70% revenue growth holds, so forward multiples are materially lower than trailing. The whole bull/bear argument lives in whether that growth durability justifies paying \~14x sales today.) ***Figures from the 10-Q filed May 1, 2026; ownership from 13F filings as of March 31, 2026.*** ***Disclaimer: This is an analysis of the SEC filings for educational and discussion purposes only. This is not financial advice. Do your own due diligence (DD).***