Assymetric Bet - Reddit (100x ?)

There is a small probability of Reddit to be a 100x bagger in 10 years. I know we can say this about any company, but there is some merit here.

Current market cap: ~$7.5B.

The question is can Reddit get to ~$700B market cap in 10 years ? What is the probability ?

Some relevant points

  • Reddit grew revenue more than 60% annually over the last 10 years. 60% CAGR, from 8m to 800m.
  • Q4 last year: 250m revenue, 15m profit.
  • 80% Gross margins
  • 73m users and growing. The community is strong and sticky.
  • AI play (data)

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.

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Do you classify Redfit as social media? How many social media companies can the market support?

All of them? Or some better than others?

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).

This is a good question and I have to say that my knowledge is limited with Social media as a business long term.

Why does one use Facebook vs Instagram vs Reddit vs X vs LinkedIn vs Pinterest vs Quora ? I don’t know.

I do observe that more and more people are using Social media and more and more content is coming online and the demand is insatiable.

Reddit has survived and is now thriving. The revenue and profit train is just starting.

I think the probability of getting to a minimum of $70B in 10 years (10x) is very high if it continues the growth it has demonstrated for 10 years.

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.

Plan for today is to buy Reddit leaps. Market cap is $6.8B.

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Was Thursday enough of an up day?

Waiting for a $50 share price day.

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.

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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).

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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.
  • Wide Availability: Coming soon to most smart TVs.
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Sold covered call on the Leap today that Reddit had an up day.

Note that lockup expiration is 09/17/2024. The stock will go down a few weeks before this event.

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  • Record user traffic, Daily Active Uniques (“DAUq”) increased 37% to 82.7 million
  • Revenue increased 48% to $243.0 million, nearly doubling growth rate from prior quarter
  • Net loss driven by IPO expenses, first profitable Q1 on an Adjusted EBITDA basis
  • Operating cash flow of $32.1 million and positive free cash flow of $29.2 million
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