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I just want to preface this by saying I didn't use much AI outside of cross referencing data.
Alright regards, I've got a REAL value (and growth!) play here for you guys. Value doesnt just mean something thats losing its moat, thesis, but getting cheaper on paper. While valueinvesting is lost dumpster diving looking for ADBE PYPL and LULU, I still believe there may be hope for you guys.
**FINANCIALS:**
* Trailing P/E \~ 45 (since r/valueinvesting really loves this?)
* Forward P/E \~ 35
It looks expensive on paper but if you factor in the > 40% growth rate the P/E compresses rapidly at these prices. At 60% yoy growth Forward P/E is only \~28.
Lets assume yoy revenue growth rate is 40% (Actual avg since IPO is \~ 65%, lowest is 48%, highest is 78%), then the PEG ratio is:
* 35/40 = 0.88 (<1 considered undervalued)
Note: The actual change yoy for advertising (\~95% of total revenue) is actually higher than what it looks like, because the deals RDDT signed with google/openai pre ipo (\~$65M each/year) have not grown.
* Q1 2025 AD Revenue = $358.6M (vs $392.4M Total)
* Q1 2026 AD Revenue = $625M (vs $663M Total)
So in effect the core revenue engine has grown 74% yoy, while the ‘other’ portion of revenue has been mostly flat. Now other financials:
* Capex = 1m (wtf, 0.15% of revenue)
* Cash \~ 2.8B (9% of market cap)
* Diluted EPS = $1.01 (up 667% nearly 8x from Q1 2025 = $0.13)
* EV = 31B - 2.8B = 28.2B (no debt)
Gross margin for RDDT has been >90% for the 7 quarters (high 80s in the first 2 quarters after IPO in 2024), and net margin has been steadily increasing looking at Q1-Q4 2025:
* Net Margin for 2025: Q1 7% -> Q2 18% -> Q3 28% -> Q4 35%
Showing the cyclical nature of ad spend. Whereas Q1 2026 is already off to a strong start (weakest quarter usually): Q1 2026 = 31% (down from Q4 2025 though)
**AI LICENSING RENEWALS:**
I think I have sufficient evidence to believe RDDT is in real talks with Google/OpenAi about deal renewals, and these deals won’t have just flat fees, but rather structured and usage based pricing too. And these deals will also be nearly pure profit to the bottom line. I first started piecing this together when Spez presented at the BofA tech conference, he said:
*“ And so Reddit is used in pretraining, right, create the whole model. It's used in post-training, like teach the model how to speak like a normal person. It's used in grounding, like what do people actually think. And then on top of that, these models are running on a live search index of like what's going on, on Reddit. ”*
As well as:
*“And so I think we have mutually a better understanding of where the value is, and it's our job to make sure we like fully capture that value. And so I will say these relationships have been complex or rather the deals are complex. They're almost like M&A deals. But the relationships, I think, have been mutually really valuable. And so everybody, I think, is incentivized to continue doing. ”*
Another comment from the Q1 AMA at r/RDDT includes:
*“We’ve learned a lot over the last two years and those learnings should be reflected in future partnerships, including ways to make them more product-focused versus “data for dollars.” I can’t get into specifics about deals or renewals, but can say that we fully understand the value we bring to the table. ”*
I think a renewal is inevitable, and timing could be very soon, with also a PAYG model, for the four phases of LLM’s u/spez said: pretraining (probably the flat fees from before), post-training, grounding, and live index searching.
**LAWSUITS:**
The main lawsuit RDDT is currently fighting is against Anthropic, im not too well versed in this but RDDT caught Anthropic scraping data by setting a trap, and the ironic thing is recently Anthropic has been accusing Alibaba of stealing Claude’s capabilities by running a massive amount of bots. Also previously Anthropic has paid 1.5B to authors of books for training on their data too.
**THREATS:**
* SBC (12%/$79M of Q1 Revenue, trending down also $1B buyback is in effect)
* Competitors (Digg which died within a month or 2, and Meta’s Forums)
* Overreliance on Google search (but according to Spez, and I also think this relationship is mutually beneficial for both parties)
* Getting zero click throughs from google ai overview (I think this could be factored as a condition into the future licensing deals to ensure reddit gets adequate visibility in its overviews)
* Slowdown of US growth.
Reddit is truly a 1 of 1 business, Ai is not a threat since generative Ai has been around for a few years and reddit’s userbase only grows larger and more active. Their moat is their 20 years of data and users. I would like to hear any rebuttals or arguments against my thesis, or any other comments.