r/valueinvesting
$RDDT is not undervalued. Don't fall for the trap.
Author argues $RDDT is overvalued due to poor ad quality, limited audience, and inferior data targeting vs META/GOOGL.
- Advertisers report poor results and inability to scale due to limited US DAU and small niche audiences.
- Ad targeting is inferior because Reddit lacks deep, logged-in user data; subreddit visits don't equal purchase intent.
- Ad quality is perceived as spammy and irrelevant, failing to effectively serve high-end brands.
I am seeing a lot of $RDDT bulls in this sub lately.
The main bull case for $RDDT is based on a fundamental misunderstanding of the business.
$RDDT bulls mistakenly assume Reddit users are the main customers of Reddit. That's not true, advertisers are the main customers of Reddit.
Even if Reddit feels like a much better social media than Twitter, advertisers do not care.
It doesn't matter what you feel as a user of the platform. The Twitter/X user can be a right wing dimwit who votes Trump and the Redditor a highly educated tech executive. Both are just eyeballs for ads.
So we should focus on the ad quality. The fact is Reddit's ad quality is not any better than Twitter/X. 99% of the ads on Reddit are irrelevant. Most of the ads look and feel spammy. Even high end brands like Iphone ads look spammy af, almost the same as Google adsense ads.
Advertisers have reported abysmal results and inability to scale good results because the available audience is very limited. Not surprised as Reddit only has 50 million DAU in USA and most niche subreddits (where the real commercial value is) are tiny.
Reddit has terrible ad targeting. Reddit's ad targeting capabilities are similar or worse than that of Twitter/X's. That's because both Reddit and Twitter do not have user data, Reddit even less so as users are not logged in.
Reddit can target interest and gather user data based on subreddit visits, which is the main and biggest draw for advertisers. However, this has not proven to be effective even after 3 years since IPO. This disappointing result can be explained quite simply. Subreddit visits do not equate to purchase intent. Subreddit visits CANNOT substitute actual user data for purchase intent. To get the kind of user data, you need to know everything about a user, not just what subreddit he visits. In this world, only Google and META has that kind of user data depth. Unfortunately, people will never let Reddit know their real identity.
What about the data licensing business? Reddit may have great data but its data is NOT valuable because everyone can access its data. To illustrate how bad this is, in 2021, Twitter actually had $500 million revenue from data licensing, that was Pre-AI. Why do people pay Twitter? Because they will have no other way to access Twitter's data. The fact that nobody, except for AI companies, pay for Reddit's data is VERY jarring and shows how indefensible is Reddit of its data.
Worse, AI companies like Anthropic and Perplexity actively scrapes Reddit's data through 3rd parties and there's nothing Reddit can do to stop that. The reason why Reddit allows this is it has no other choice as it needs to be visible on Google Search, which contributes more 50% of its user traffic. The fact that Reddit needs to sue Anthropic to enforce its right proves that Reddit cannot protect its data other than through legal avenues, which is a very fragile kind of protection.
I haven't even touch on the risks to Reddit's business, which are pretty serious:
\- Very high dependence on Google Search
\- Comments/posts by bots that are becoming and may eventually become Indistinguishable from humans
\- Uncontrolled SBC and weak shareholder rights (majority of voting power held by management) causing it to end up like SNAP.
For those who think $RDDT is a $100 billion company, rethink again from the perspective of an advertiser and not the user. Pre-Elon Twitter has higher DAU and yet was valued at $44 billion at its peak (during Elon's acquisition). Reddit is now valued at $33 billion despite having lower DAU than Twitter, giving it very limited upside. Yes, Reddit is profitable and Twitter is not. But the future returns from here is just too low. At current share price, $RDDT is at best a 10% growth/year compounder stock. I would rather just own $MSFT or $META as their risk to return are way better than $RDDT.
Yeah OP doesn’t know what he’s talking about.
As someone who decides channel mix and spends six figures on Reddit ads, it’s important to understand diminishing returns on ad channels. You can’t just dump your whole budget into your most effective channel. You have to have a mix to reach different audiences at scale. And Reddit over the last couple years has actually made their ad platform better and it’s performed well for us. Not as good as Google, Instagram and Facebook, but well enough to justify continued spend.
I dont agree with your take since I view some of the problems you raise more as opportunities. I think the market is pricing Reddit for the scenario you’ve laid out where their ARPU flatlines. I think Reddit can improve ad quality and targeting. AI should make it easier than ever to do that.
As a side note, you’ve laid out a respectable counterargument (including some ARPU benchmarks) that I believe is more thought out than 99% of posts in this subreddit, which is filled with either AI slop or based entirely on vibes. Yet you’re being downvoted. Just goes to show the quality of this sub.
Strong points
1. Reddit’s ad machine is nowhere near Meta’s
I agree.
Meta knows:
Who you are.
Your demographics.
Your social graph.
What you buy.
Which ads converted.
Reddit mostly knows:
What communities you browse.
What content you engage with.
Those are very different datasets.
Meta’s targeting moat is vastly larger.
2. Google dependence is real
This is one of the biggest risks.
A large portion of discovery comes from Google search. If AI search changes traffic patterns or Google changes rankings, Reddit gets hurt.
That’s a genuine bear case.
3. Governance/SBC concerns
Fair.
Dual-class shares and heavy SBC can absolutely limit shareholder returns.
Where I think the argument is weak
“Advertisers don’t care about user quality”
This is the biggest flaw.
Advertisers absolutely care about context.
Someone reading:
r/HomeImprovement
r/Running
r/PCMasterRace
r/Bogleheads
is signaling intent.
A user spending two hours reading GPU threads is much more valuable to Nvidia than some random Twitter scroller arguing politics.
Intent matters.
Google Search became a giant business largely because intent matters.
“Subreddit visits cannot substitute for purchase intent”
Not entirely true.
Subreddits are basically self-selected interest graphs.
A guy hanging around:
r/espresso
r/rolex
r/golf
is practically telling advertisers who he is.
Reddit has much less identity data than Meta, but much richer semantic data.
AI actually makes extracting those signals easier.
“Data isn’t valuable because everyone can scrape it”
This misses something important. The raw text is public.
But:
historical archives,
embeddings,
metadata,
user relationships,
moderation layers,
real-time firehose,
are harder to reproduce.
Google’s index is public too—you can visit webpages yourself—but Google’s index is still incredibly valuable.
Comparing to Twitter’s $44B acquisition
Twitter ≠ Reddit.
Twitter had:
celebrities,
politics,
news,
outrage.
Reddit has:
search intent,
product discussions,
hobbies,
recommendations,
long-form conversations.
Very different assets. Twitter was a real-time broadcast network. Reddit is almost a giant interest graph and knowledge base.
The biggest thing you miss: Reddit as an advertising business only.
I think the bull thesis is:
Reddit is becoming the anti-slop layer of the internet.
People increasingly append: “reddit” to every Google query because they want human opinions. That asset may become more valuable in an AI world, not less.
Potential monetization avenues:
Ads.
AI licensing.
Search.
Commerce.
Recommendations.
Premium communities.
Agents using Reddit data.
AI-assisted shopping.
The market isn’t paying 33B because of today’s ad business.
It’s paying for the possibility that Reddit becomes the internet’s human knowledge layer.
What would actually break bull case?
Not this post.
Things that would worry me much more:
1. DAU growth stalls below \~20%.
Then the TAM may be smaller than expected.
2. Ad load reaches saturation without ARPU improvement.
Then Reddit really is just Twitter with smaller scale.
3. Google traffic declines and internal discovery fails.
4. AI Overviews remove Reddit clicks.
5. Meta or Google successfully recreate community search with AI.
Interestingly, you assumes:
“Reddit users are not customers, advertisers are.”
I think that framing itself may be wrong.
Google’s users aren’t customers either, yet Google’s value came from organizing information.
Really well thought out response. I agree with your assessment. I think the only risk is #4 at the bottom of your post - to which Reddit has an easy lever to pull. Force login and/or Charge Google a very high amount to include its data in the AI summaries. I think reddit will go that route eventually, but it’s working with Google for now because they’re still in phase of growing awareness of the platform. Eventually it will hit critical mass where the greater value isn’t in getting more users but rather extracting more revenue per user.
Literally no one thinks Reddit is a b2c company. Everyone knows it’s an advertising company just like all the other socials. Reddit is very unique in its structure compared to others and the success of the company is entirely reliant on them being able to leverage that unique structure for ads.
Because this is a new era where AI needs data and social data is a never ending treasure trove of changing consumer sentiment - goods, politics, hobbies, technology, media. There is greater monetization opportunity now
Funny. The people I talk to in consulting and using Reddit data all say it’s the best source of social sentiment because of the data structure. So people paying for it a si sing the data to build an sell consumer research disagree
There are entire civilizations where WhatsApp is essential infrastructure and they contribute very little to meta's bottom line
Perfect buy signal
So if you think you’re smart enough to identify and filter out AI slop what makes you think that can’t be codified into the data and you’re still left with a valuable dataset of consumer sentiment? What makes it any different from Meta in that regard?
Don't care about your ai slop..my mom who barely knows how to use a TV remote the other day references someone on reddit talking about some dumb thing
Reddit used to be only for Internet sleuths and incels. Then it became more mainstream to general millennial/z. Now boomers are realizing it has value
This makes me bullish on reddit actually. Sounds like there is plenty of room for improvement and growth. Was that your sneaky intent OP?
Do you have any practical response to this point? I feel that international growth is indeed a point worth focusing on, and I would like to hear everyone's thoughts.
They are that’s why revenue is growing