Finance Jack
Equity Research
Reddit is the top buy now because fast, profitable growth comes at a modest valuation. Revenue grew about 70% as ad targeting improves, and its $6.18 ARPU versus Meta's $16.86 shows white space. Operating margin rose from -11% to 28.8% in two years and free cash flow per share from $0.14 to $5.30. Cash is about 9% of market cap with no debt, and demand for real human answers is a moat amid AI slop. At 36x trailing earnings with EPS growing 40%+, forward PEG is well under 1. x.com x.com x.com x.com x.com 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 stock is unlikely to rerate until it shows cleaner US daily user growth and less reliance on volatile search referrals, despite a strong financial engine. US DAUq grew only 6% versus 28% internationally, logged-in growth was just 7%, and management called search traffic volatile. The 100M US DAU goal looks further away, AI licensing showed no progress with other revenue up 24% to $43M, and the $860-870M Q3 revenue guide did not address user concerns. 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's share price is collapsing even as its fundamentals accelerate. Average revenue per US and international user is accelerating, growth is speeding up and the business is showing signs of operating leverage. 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'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 carries Pinterest-like downside to a 10x P/E if investors decide North American user growth is toast, while the stock is priced on everyone playing for big numbers from new lab deals. x.com
Reddit's main business is declining and its data licensing business is too limited to make up for it. x.com
Reddit's logged-in users drive monetization, so weak search-driven traffic matters less than ARPU. Reddit says app and logged-in users grew sequentially in Q3 and generate over 80% of monetization, though lost search referrals also hurt them. ARPU rose 53% despite barely higher users; a low ad base could allow it to double even with muted growth. Restricting Google scraping might force a licensing deal that helps its Anthropic case and OpenAI renewal, though no deal is certain. x.com x.com x.com … Show more
Snap does not deserve to be compared with Reddit; it remains a far weaker business. x.com