Reddit reported Q4 earnings, guidance is weak but seasonality (hopefully) is the big reason.
Reported revenue of 726M (70% YoY, 24% QoQ)
Net income of 252M (approx 35%) which is a solid increase and brings yearly net income to 24%.
Revenue guide of 600M at the mid point is disappointing (-17.3%) but Reddit does suffer from seasonality and continuously beats guides.
Q4 last year came in at 427.7M and guided for 365M at the mid point a decrease of 15%. Actually revenue came in at 392.4M (-8% QoQ).
The valuation has been crushed lately p/s down to 12.4, pe at 54 and fwd pe of 25. At the current valuation I feel comfortable maintaining my position. The market rewarded RDDT but upon opening got hacked 5%
Overall I’m content with the results. Not a grand slam but may be setting themselves up for a great report for Q1 if revenue comes in above guide and has a solid revenue guide (>Q4 revenue) as they did last year.
I was really impressed with this earnings report. I think the selloff is entirely based on the Q1 guidance which is soft but seasonal.
A lot of good things were in that report/call.
Revenue growth actually accelerated from 68% YoY LQ to 70% this Q.
The insanely high GM of ~91-92% continues with excellent net margins and Free cash flow which tripled over the past year!
ARPU is growing solidly at 5.98 vs 5.04 LQ (up 42% YoY)
Rule of 40 is now 115%!
Sustained international growth with acceleration to 78% from 74% LQ
$1 billion stock repurchase program approved
Forward P/E is less than 30 and they just tripled earnings in the past year
Here are some of my highlights from the earnings call:
Dynamic Product Ads (DPA) increased advertiser ROAS by > 75%!
total advertiser count also grew 75% YoY!
click volume in mid-funnel grew > 60% and lower-funnel conversion doubled YoY!
still “early in our shopping ads journey”
ads strategy in 2026 includes leveraging their 24B posts and comments to deliver more ad value through the entire funnel
one of the strengths of their internal Reddit Answers product is answering questions “without an answer” such as which product is best (personally I use this a lot)
80M people using Reddit search weekly vs 60M LY
Reddit answers released in 5 more languages
doing away with logged-in/logged-out reporting metrics in H2
full year headcount up 14% YoY
full year adjusted OpEx up 41% due to hiring and marketing
3 capital allocation priorities: 1. invest in core business, 2. M&A where it makes sense, 3. share buybacks
plan to keep $1 billion in working capital on the balance sheet
SBC was 18% rev in 2025, they see high-teens similarly in 2026
full year Capex < $10 million
their shopping product is competitive with Tier 2 peers but they want to get to T1 and feel it’s early in the game
marketers see Reddit as a place to get their product to show up in LLMs as it is a top contributor to LLM results and they are focusing teams to that end
Balance sheet is extremely solid with an excellent current ratio and significant cash. Dilution minimal with significant buybacks coming.
If they can capitalize on the current userbase and continue with their successful deployment of ads and conversion to shopping partner, I think there is significant runway as their ARPU is still far below key players such as META. Meanwhile, they still saw DAUqs up 19% and WAUqs up 24% so there is growth coming from the new user front as well.
I am comfortable holding a medium-confidence position in Reddit as I was happy with this report and think the market is misjudging the opportunity.
Funny anecdote: I just saw on Twitter/X somebody was vibe-coding a Reddit analog on Opus 4.6. My first thought was who cares?
I am not worried about Reddit being the only website that could do this. I go there because of the richness of billions of posts and comments from hundreds of millions of users and communities - a huge first mover advantage.
Vibe coding is a big deal, don’t get me wrong, but the market is being irrational and selling everything. Would you stop going to the massive, free waterpark down the street because the neighbors bought a sprinkler?
This is one thing I don’t like. The company said this was because there was no longer a clear boundary between login and logged-out users as they personalize onboarding content. But I think the actual reason is that they expect their YoY growth on logged-in users to further slow down from the high single digit. For everyone who understands performance ads, they should know that logged-in users (with much richer feature profile) will have much higher ARPU than logged-out users.
US DAU continuing to grow at high single digit is another issue, because again, US users will always have higher ARPU than RoW users in any apps.
And I echo your concern about the weak Q1 guidance. They guided weak Q1 one year ago as well and, when they delivered that Q1 result, stock price tanked from $200+ to $160ish.
That being said, I think Reddit is extremely undervalued now because the forward PE is only in 20s and forward PEG is likely around 0.5. In addition, although the slowing growth of US and logged-in user base could put a ceiling to Reddit’s growth, Reddit’s advertising business is still at such an early stage that it’s still far from reaching the ceiling yet. I think Reddit can still maintain 40%+ top line growth for at least one year by growing ad supply, introducing new ad formats and polishing the accuracy of model predictions.
Because of these factors, I added more shares to make $RDDT my largest position for now.
@monkeydluffy
I think those are fair concerns. Re: the logged users, they said on the earnings call that the distinction is becoming less meaningful as Reddit streamlines onboarding and improves instant personalization. I suppose it is up to us to determine whether we believe them. But I agree that it is a nice additional data point. One of my expectations for coming quarters is to see if they can better monetize this rapidly-growing RoW contingent. We will have to keep an eye on that.
The guidance part I think is way overblown. Saul is not a big fan of playing guidance games. In the Knowledgebase he says companies are under significant pressure to beat estimates which influences how they report. He argues that if a company gives realistic high estimates and misses, they’re punished, and if it gives low estimates to ensure a beat they may also get downgraded. I think we are seeing exactly that. Funny enough, $RDDT just beat their midpoint guide for rev this quarter by 10%. If they beat next quarter’s rev guidance midpoint by 10%, that would be 660 / 392.4 revenue from last year. That’s 68% YoY, and not even a slowdown. The market is illogical and shortsighted!
I agree with you about Reddit seeming undervalued, particularly with the kind of margins and sticky userbase it has. Even if there were no new user growth, if they could get close to META level of ARPU it would be nearly a 3x from here. And I don’t expect zero new user growth. So still seems like there is quite some runway here.
I actually find myself using Reddit more often these days and feel like they have their eyes on the right levers to pull moving forward. Happy to hold a solid position and I picked up more shares (and even @GauchoRico -style LEAPS) today.
This is a good summary of the concerns and positives some of us were discussing in another thread. Growth will slow — very soon. But they did 70% YoY revenue growth last quarter and will do prob 65% next quarter. Is it premature to be concerned? Q2 will be a tough comp but 50%+ growth looks possible. These aren’t numbers that usually concern us.
I am conscious though, that the “right price” is a big factor here. Despite the current growth level, if RDDT were trading at something like 50x next year’s EPS, I would call it a sell for sure, because I don’t think things will get better and better for years to come. In this way, it’s not dissimilar from MNDY and those others I called out — it’s just that growth hasn’t slowed to those levels, yet.
I’m really not sure when to react to the growth slowdown we all know is coming.
Perhaps looking for companies that might be able to 3x or more is a better use of our collective brainpower: Follow The (AI) Money
