Michael Wiggins De Oliveira
Deep Value Returns, Equity Investing without Options or Leverage
Reddit is one of the most compelling opportunities in the market, and today's worries about Google referrals and AI disruption will look like the moment to have bought. Investors fixated on search-referral risk and short-term user growth are missing exceptional financial performance: surging revenue, expanding margins and no debt. It trades at just 19x an estimated $1.7 billion of 2027 free cash flow, supporting a $315 target by early 2027. x.com
Reddit's selloff over its Google negotiations is an overreaction that overlooks a business still growing at an exceptional pace. Revenue is rising about 45% year over year, and free cash flow is inflecting rapidly toward $1.1 billion in 2026. The market is undervaluing those cash flow prospects, supporting a $315 price target by early 2027. x.com
Reddit's US ARPU growth is more impressive than the market credits. It rose 40% since March to $14 per quarter, while trailing free cash flow reached about $1.2B in September. The US daily-user chart is less flattering. x.com x.com
Reddit is cheaper now than in 2025 even though its revenue has nearly doubled since then. x.com
Reddit's worsening US user growth threatens its revenue runway despite elite ARPU growth, revenue growth and margin expansion. US daily users fell 2% year over year and missed estimates by 7%; the Q4 guide was weak. It needs healthier user growth in its most important market to dispel Google/AI discovery fears. Forward indicators do not look promising, and the trend of positive estimate revisions will end. x.com x.com
Reddit's push toward required logins could improve targeting and monetization but may hinder search discovery and add friction for casual users. Revenue rose 53% to $895M and free cash flow reached $363M, yet overall user growth lagged despite a good showing from US logged-in users; stock-based pay was higher than desired. Google will probably pressure near-term DAU growth. The finances remain solid, but the login strategy's impact on growth needs more clarity. x.com x.com x.com x.com
Reddit still looks undervalued as Needham's Q3 traffic tracker shows app downloads up 19% and web visitors up 2-3% quarter over quarter, adding to strong alternative data behind an expected Q3 beat and raise. Shares trade at 18x next-twelve-month EPS while revenue is growing 60-65% and EPS 65-70% year over year; new Anthropic, OpenAI or Gemini licensing deals remain possible over the next couple of months, not secured. x.com
Reddit's Q3 drop in US daily users risks another poor market reaction, even if headline earnings are strong. Last quarter a slight sequential decline in US daily users sent the shares down 20% despite a massive triple beat; the new chart shows a further sequential drop in Q3. x.com x.com
Reddit's selloff has nothing to do with the business, which scores 109 on the Rule of 40. Last quarter revenue grew 69% with a 40% adjusted EBITDA margin, net income was $204M, free cash flow $311M at a 47% margin, and cash stands at $2.8 billion; the Q4 print scored 115. In a real drawdown the market sells what is liquid and up, and quality does not protect against multiple compression. When the tape settles, the scores will still be there and the fear will not. x.com
Reddit's pullback below $150 on insider-selling headlines is not a fundamental shift, as monetization is accelerating faster than user growth. Q1 2026 revenue grew 69% to $663 million with $204 million of net income, a 31% margin, and EPS of $1.01 was 7x a year earlier. Daily active users rose 17% to 126.8 million while ARPU jumped 44% to $5.23. AI data licensing deals with Google and OpenAI are a higher-margin second engine, projected to reach $400 million a year by 2027. x.com
Reddit may face short-term pressure after Morgan Stanley cut its price target from $240 to $210 while keeping Overweight, adding risk premium for possibly slowing user growth and shifting Google traffic, especially AI Overviews reducing referrals. Morgan Stanley stays positive on revenue and EPS growth, and advertising, AI data licensing and Reddit Max remain long-term catalysts. Renewed strength in Google traffic and DAU/WAU growth could bring the target back up. x.com
Reddit is a financial machine whose valuation only makes sense to bears if growth stalls completely. At about 10x sales it looks rich for an ads business, but it is growing 66% now and about 30% at the midpoint next year, putting it near 7x next year's sales. x.com x.com
