r/valueinvesting
My honest thoughts on Reddit (RDDT)
Reddit is a strong business with high margins and AI tailwinds, but lacks daily habit formation compared to peers.
- Exceptional financial metrics with 60%+ revenue growth, 91%+ gross margins, and near-zero CapEx.
- Unique structural advantage in the AI era as a primary training corpus and a destination for authentic human perspectives.
- Main risks are execution-based rather than competition-based, making it highly valuable.
- Product engine is failing to keep up with business performance, lacking a compulsion loop for daily habit formation.
- Large gap between daily (50M) and weekly (200M) US users indicates episodic, intent-driven usage rather than organic daily engagement.
I've been looking into Reddit, and it genuinely seems like a very strong business to me:
\- 60%+ revenue growth for seven consecutive quarters,
\- 91%+ gross margins,
\- 40% EBITDA margins,
\- Near-zero CapEx.
It passes my basic filters as a company being in the buy zone. I like it's forward PE ratio of 33x, even though that is high for some folks. This is because of its structural advantages.
The platfrom is built on two decades of authentic human conversation, and that asset is becoming more valuable in an AI-dominated internet.
Other platforms like Facebook, (and especially LinkedIn) are seeing their content commoditized or their traffic disrupted by AI summarization, Reddit is benefiting from both sides of the AI wave:
- As the primary training corpus for LLMs
- The destination people turn to when they want a human perspective rather than a machine-generated answer.
The more AI there is, the more Reddit matters.
One thing I would say that is a concern is that despite exceptional performance in the business engine, the product engine is failing to keep up.
In particular, management is concerned about the fact that dailly US average users total 50 million, while the weekly US average users total \\\~200 million.
A platform with genuine daily habit formation does not have this shape. If you look at Facebook, Instagram, TikTok, or YouTube at comparable stages of maturity, the daily-to-weekly ratio is much tighter (because the feed is engineered to create a compulsion loop. You open it not because you have a specific question but because you expect something interesting to be there.)
Reddit does not yet do this for most of its users. The dominant use case for the majority of Reddit's weekly base is still intent-driven. Episodic users do not build daily habits organically.
Despite this, the company is very valuable because its main risk is execution based, and not competition based.
Would appreciate some insights or obvious angles I've overlooked
I've been a Reddit user for a long time. I'll go through periods of checking it every day and weeks where I have less interest. If I get really excited about a hobby or sports event this is the best place to discuss it.
Social media is a hard industry to survive in. We've watched sites rise and fall: Tumblr, Myspace, Google+. Only a handful have ever broken through to reach the scale where it becomes impossible to replace. Facebook and Instagram will survive. X and Bluesky may not.
Reddit spent 20 years focused on building a user base before it went public. I've watched it go from a niche nerdy website to a mainstream platform. I think that will continue. It's the network effect. Growth begets growth.
That's why I'm not stressed about the daily active users. Reddit is growing fine. It's one of the most visited sites in the world and continues to reach more people.
At this point it's just a revenue monetisation play. The only reason a website as popular as Reddit is only valued at $30b is because it was extremely slow to roll out ads.
There was some good logic behind the delayed ad rollout. You need to focus on building a user base first. Same reason Zuckerberg fought against ads in Facebook initially.
Reddit hasn't historically shown many ads. That's why we see 70% growth mutiples – because it's starting from a very low base.
The most compelling case for me is that Reddit has already done the hard yards of aquiring users and now just needs to get a bit better at making money off them. So far, it seems to be working.
Reddit needs to clamp down on bots if they want to preserve that,
Imagine when LLM based bots are posting on reddit and being used to train LLMs which then post on reddit themselves.
They need to keep it under control but reddit is by far the best place on the internet regarding bots. Anywhere else on the internet there would be bots already in this post. It just isnt very annoying or noticeable here other than generic karma farm posts.
Red dot plane picture
/j
You got the words already,
you should try numbers next.
—-
Are you aware of how Reddit makes money?
Reddits purpose is entertainment and add revenue.
How the fuck could those be regulated and bundled for utility?
remove bots = pump
Ad revenue is about to be reset, regulated and bundled for utility? Or what are you talking about?
Still regretting it for not buying at 120. Will buy it if it touches 135 again
Yeah imagine you are an advertiser and the bots engaging with your ads and you get charged per click or per view
So even though Reddit makes >95% of its revenue with zero association to AI, your take is that future AI changes are going to make reddit unprofitable?
Are you just being emotional or can you actually spell out the logic
You know, when the Reddit was created monetization was probably thought of in ads and premium subs. Even if AI does slow down a bit from here (personally think there's still a lot of room for it to grow), Reddit makes a big portion of their revenue from non AI sources.
If they're too many clicks with not enough conversions, that makes things bad for the company
You make a valid argument. I dont check Reddit every single day. I use Reddit to learn something, research product reviews, figure out how to fix something, get the public’s opinion on a home service bill, etc. I’m on here to learn things and read other people’s perspectives. It helps solve a wide variety of problems in my life.
It’s honestly the only platform where I can ask for help and not fear any judgment from my friends, colleagues, former colleagues, family, acquaintances, classmates, etc. You don’t get that with Facebook, LinkedIn, WhatsApp, etc. Their systems are designed for them to recommend mostly people you know in your phone contacts or mutual friends. And Facebook, IG, X, Snapchat are just news outlet, which is why everyone checks it everyday. Its make me dumber if I’m being real with you lol.
What I am bullish on is how helpful it is for normal people like me and you. I recommend Reddit to any younger kid (I’m in my mid-30s) and they find it immediately useful for any type of research.
I’ve heard CEOs (50+ year olds) of really large companies tell their staff they use Reddit to research topics. We all know a lot of millennials use it. Now Gen Alpha is starting using it more and more.
I’m bullish on the user base growing simply because of how helpful it is.
I’ma hold this stock forever!