“The social media’s revenue grew 78% to $500 million, its fastest revenue growth in three years, according to the company. That figure was ahead of the $425 million projected by Wall Street analysts tracked by Bloomberg. Reddit reported adjusted earnings per share of $0.92, ahead of the estimated $0.72.”
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What a great quarter.
I was looking for something around 450M in revenue with a 497.5M top end guide. RDDT posted 500/545 with a record-high 17.9% net profit margin. Leverage is really kicking on monetizing ads with YoY ARPU growth accelerating from 14.0% to 23.1% to 23.5% to a record 47.1% this quarter. Daily active uniques came in slightly stronger than expected as well, suggesting AI isn’t cutting into Reddit’s traffic (yet - something to watch).
All in all, an excellent report.
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I did an independent valuation of Reddit. Their free cash flow now is 396.8. At the end of 2027 it is expected to be 1,131.3. That is a 52% CAGR. Share count is expected to grow by 1 - 2 % per year. The way I do my valuation, I believe you can expect a 24% CAGR at this stock price through the end of 2027.
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Just so you know, my valuation was predicated on a (price/free cashflow)/(free cash flow growth) of 1.5. I think that is reasonable for a company growing at 52% CAGR. Here is my question.A year ago it was at 53. It got as high as 225, and then as low as 87. It went to 125, down to 96, and then up to 244. Also, the shiller p/e is the second highest it has ever been, so I think we are due for a correction or worse, and a correction due to ETFs take all stocks down. I think 150 would be a better entry point. Do people agree. I don’t have a position yet.
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In all honesty, no one knows. In the spirit of the board, you are asking a market timing question based entirely on the recent price movements of the stock.
RDDT is clearly a BUSINESS hitting on all cylinders. That business has plenty of room for additional leverage and profit. The risk is something external happens that negatively affects either the overall market or more specifically to RDDT the advertising market. Good businesses always go for a premium, especially in heated markets. It’s up to the individual whether they consider that a business worth owning. Is RDDT a business worth owning? Absolutely. At this price? 
Please understand I’m not trying to invalidate the question. However, it’s worth the broad reminder this board is NOT about the stock but the underlying business. We need to be careful not to drift too far from that basic principle. If you have a question about RDDT’s ability to maintain or build from its recent performance, fire away. What we should do with the stock though is anyone’s guess and moves the discussion toward being off-topic.
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Ok, understood. As I said, based on a (future price to free/cash flow)/(free cash flow growth) I expect a 24% CAGR through Dec. 2027. I’m relying on analysts free cash flow growth numbers.
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In my opinion RDDT is roughly 30-40% undervalued at today’s price even with the 347% run-up over the past year & 50% ytd. It’s trading at 50 x NTM EV/EBITA and the Fwd 2-Yr EBITDA CAGR is 90%. I like to add when the ratio is .5 between these two metrics. I already have a full position at 10.5% and a cost basis around $115 so I’m not adding to it but it seems like a reasonable time to start to DCA a position and I’m certainly not selling a single share. I’d be willing to add on any big dips because I believe there is a lot of upside over the next few years.. The market is frothy but RDDT’s valuation is not.
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As another point of reference, Jonah put a conservative fair value of $232 on RDDT.
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I redid my valuation. Instead of trailing price to free cashflow, I am using forward price to free cash flow in 2027. I expect the free cash flow growth to decline by the end of 2027 due to the law of large numbers. I think a reasonable number for price to free cash at year end 2027 is 40 to 50. Post IPO, they have diluted shares at 11.5% per year. I am assuming that will continue. That gives me a fair valu
e range of 130 - 204, depending on what type of return you want to make.
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