The main problem I have with Reddit is that as a user, the platform could be better. It frequently has stability issues and they have not innovated on the platform much (compared to the many features X has added e.g. Spaces, Video and Audio calls etc.)
In the mean time, I sold a put for $35 and collected $7.5, which is a 21% return + 5% interest = 26% OR get stock for $5.8B market cap.
Since the vast majority of revenue comes from advertising, perhaps the question is “how much advertising can the market support?” I think I’ve read that when a recession arrives, advertising drops, sometimes dramatically, so it might all depend on that. If we have a recession, advertising will drop, and the revenue across all the social media platforms will drop, and the sentiment will drop, and very likely the stock prices will drop. We probably can’t have a recession anytime soon because government is supplying massive amounts of capital on a continuous basis (infrastructure bill + IRA = trillions of capital).
Do you think continued revenue growth will be sufficient, or will there also need to be some substantial growth in net profit over the next 10 year period?
I feel Reddit is in a mode where “any idiot can run it”. They have strong growth.
They had $800m in revenue and spent $450m in R&D which was $100 more than year before. Not sure where it was spent. The product was and is substandard. With 80% Gross margins and ability to cut R&D spending, they don’t need to demonstrate “substantial” growth.
So my point is despite being little mismanaged, the business has grown and now is the beneficiary of network effect. Advertisers will go where user’s attention span is. It is safe to say that they will grow over the next 10 years.
I’m not much of a social media user and certainly not in the ad business but over the years what I’ve seen and have been told is that Facebook seems to give companies the most return on advertising. Not sure why, or whether they have an edge on getting ads to the people most interested in those products/services but I’ve been told that by a number of people.
Not sure if that is still accurate. I’ve been using Reddit more often over the last year and it has been useful but it can be tough for a company to monetize a product while still providing a quality experience for the users and obviously without the users and the moderators who are unpaid, reddit is a near zero.
If I had to guess, reddit will either fade away or be acquired by another company. I doubt in 10 years they will exist on their own.
They own multiple social media services and thus have more info on everyone. They even own whatsapp, and even if they don’t look at the content (encrypted), then can build a map of relationships (who sends to who, and how often, and how large a message, etc) that can be very useful for targeting advertising (“metadata”).
Reddit seems to serve a difference social media purpose than FB/Insta/twitterX. Seems like reddit is more for “long form” material (like how do I fix this thing in my car, how do I install abcd, why do stars appear to flicker, etc), while the others are more “short form” (political discussions, media stars, cat videos, etc).
See how X is transforming. This will take a few years to show up in the numbers.
Trending Video Algorithm: Stay updated with tailored popular content.
– AI-Powered Topics: Organize videos by subject for a personalized experience. Seamless
– Cross-Device Experience: Start watching on your phone, continue on your TV.
– Enhanced Video Search: Find content faster with our improved video search.
– Effortless Casting: Enjoy your favorite videos on the big screen with simple casting from your mobile devices.
They reported $0.16/share earnings for the quarter with good growth prospects. I calculate a forward PE of 150+. A bit rich for me. But will be watching closely hoping PE comes down from the clouds.
RDDT market cap now is $20B. It is already 3x when I first posted. I think it is still undervalued if the time horizon is long.
X on the other hand is much better business now. I am watching the posts/discussions/videos on US elections on X and the traffic is insane. Reddit is tiny in comparison. It was the similar with the Olympics as well. The ad boycott is hurting $ but this is temporary. The platform is thriving and with real time Grok AI integration it is priceless.
I guarantee it’s not temporary. Major advertisers could reach more eyeballs on PornHub than Face book but that’s not a reason to advertise there. X is daily becoming more and more of a toxic waste dump. It could have all the eyeballs on the planet and it wouldn’t have Main Street Madison Avenue acceptance. But X can survive on ads for boner pills and gold investment schemes. Not well, but it will survive.
I am looking at $SNAP, snapchat, which has much higher revenue and 432 million daily active users vs 75 million active users for reddit and about same market cap. What gives?
