Reddit (RDDT) stock is currently trading on the NYSE, with some key metrics as of the latest data:

• Current price: $64.73 (as of market close)

• Market cap: $10.48 billion

• 52-week range: $37.35 - $78.08

• EPS (TTM): -$3.70

• PE Ratio: N/A (due to negative earnings)

Reddit's IPO launched earlier this year, pricing at $34 per share and raising approximately $748 million. The stock saw a significant surge on its first day of trading, closing at $50.44, a 48% increase from its IPO price

Since then, RDDT has experienced volatility, reaching a high of $78.08 before settling into its current range. The company's financials show it's still operating at a loss, with negative earnings per share, which is not uncommon for newly public tech companies focusing on growth

Reddit's value proposition lies in its massive user base and unique position in the social media landscape. The platform boasts over 73 million daily active users and is the third most visited site in the USA

Its diverse communities and user-generated content make it an attractive platform for targeted advertising and AI training data. Recent developments include:

1. A partnership with major sports leagues to bring more video content to the site, potentially boosting ad revenue.

2. A contract with OpenAI for AI training could open up new revenue streams.

3. Increasing adoption by mainstream users, potentially expanding its user base beyond its traditional demographics.

Investors seem divided on RDDT's prospects. Bulls point to its potential for monetization, particularly through targeted advertising and data licensing for AI. They also highlight Reddit's strong user engagement and unique position in the market. Bears, however, express concerns about the company's negative shareholder equity, ongoing losses, and complex share structure that favours insiders

As with any newly public company, especially in the tech sector, RDDT represents a high-risk, high-potential-reward investment. Its future success will likely depend on its ability to effectively monetize its user base while maintaining the unique culture that has made it popular.

Reddit history

In the summer of 2005, two fresh-faced University of Virginia graduates, Steve Huffman and Alexis Ohanian, embarked on a journey that would forever change the internet landscape. With a spark of an idea and funding from Y Combinator, Reddit was born in a small Boston apartment. Little did they know, their creation would grow into the bustling hub of online communities we know today.

Initially a simple link-sharing site, Reddit caught the eye of Condé Nast Publications in 2006, leading to its acquisition. This move sparked a love-hate relationship with users, who cherished Reddit's indie roots but feared commercialization. The pivotal moment came in 2008, when Reddit introduced user-created subreddits, unleashing a torrent of niche communities that would shape its future.

Market Opportunity

Reddit's explosive growth wasn't just a stroke of luck; it was a masterstroke of timing and understanding the zeitgeist. As traditional social media platforms faltered with cumbersome redesigns (remember Digg's 2010 fiasco?), Reddit stood as a beacon for disillusioned netizens seeking unfiltered content and authentic interactions. By 2020, Reddit had become a cultural phenomenon, influencing everything from stock markets (hello, GameStop!) to meme culture, and proving that its decentralized, community-driven model was a force to be reckoned with.

But Reddit's journey is far from over. The platform is strategically positioned to capitalize on several burgeoning market opportunities:

• Advertising: At the core of Reddit’s monetization strategy lies its robust advertising solutions, tailored to leverage user engagement. The global digital advertising market, excluding China and Russia, is projected to grow from $1.0 trillion today to a staggering $1.4 trillion by 2027. Reddit's ability to target specific communities with precision offers advertisers unparalleled access to engaged and passionate audiences.

• Data Licensing: Reddit recognizes the emerging potential in data licensing, tapping into the invaluable insights derived from its vast user-generated content. This data is particularly valuable for sentiment analysis and trend identification. With the broader AI market expected to balloon to $1.0 trillion by 2027, Reddit is well-positioned to become a key player in the data economy, providing critical insights to businesses and researchers alike.

• User Economy: Reddit aims to build a thriving economy within its platform, focusing on commerce within its myriad communities. This user-driven economy, where members buy, sell, and trade goods and services, is expected to grow exponentially. The potential market size for this user economy is anticipated to expand from $1.3 trillion today to $2.1 trillion by 2027, underscoring the vast economic potential Reddit harbors within its engaged user base.

Reddit's ability to tap into these growing markets not only ensures its continued relevance but also cements its status as a digital powerhouse. By embracing these opportunities, Reddit is poised to ride the wave of technological advancement and market expansion, promising an exciting and prosperous future for the platform and its users.

Product Overview

At its core, Reddit is a collection of thousands of subreddits—mini-communities dedicated to every conceivable topic. From r/AskReddit's thought-provoking questions to r/Travel's stunning landscapes, there's a subreddit for everyone. The platform's unique upvote and downvote system ensures the most engaging content rises to the top, while discussions are kept lively and relevant. This unique structure ensures that content is organized and easily accessible, fostering a sense of belonging and active participation among users.

Reddit’s evolution has introduced several key features that enhance the user experience:

• Subreddits: These dedicated communities are the heart and soul of Reddit. Users can join and participate in discussions on specific topics, ranging from hobbies and interests to news and niche communities. Each subreddit is moderated by community members, ensuring that discussions remain relevant and engaging.

• Reddit Gold and Premium: Reddit offers subscription services like Reddit Premium (formerly Reddit Gold), providing users with enhanced features such as an ad-free browsing experience, access to the exclusive r/lounge, and monthly Reddit Coins to reward and recognize quality content and comments.

• Advertising Solutions: Reddit has developed robust tools for advertisers, allowing them to target specific communities based on user interests and engagement. Sponsored posts blend seamlessly into user feeds, providing brands with a unique opportunity to connect with highly engaged audiences in a native and non-intrusive manner.

• User-to-User Marketplaces: Reddit features platforms within the site where users can buy, sell, and trade goods and services. These marketplaces leverage the trust and familiarity of subreddit communities, making transactions smoother and more reliable.

Reddit’s evolution saw the introduction of native video hosting, live streaming via Reddit Public Access Network (RPAN), and a slick redesign in 2018 that modernized its look and feel. Despite initial resistance, these updates have kept Reddit at the cutting edge of social media, providing a continually improving user experience.

Through its blend of community-driven content, robust engagement features, and innovative monetization strategies, Reddit remains a vital and ever-evolving part of the social media landscape.

Business Model

Reddit's business model is a savvy blend of advertising and premium subscriptions. Sponsored posts blend seamlessly into user feeds, offering brands a chance to engage with communities authentically. Reddit Premium, a subscription service, provides an ad-free experience and access to the coveted r/lounge for exclusive content and perks. Additionally, Reddit Coins allow users to award posts and comments, fostering a culture of appreciation and engagement.

Reddit's revenue in 2023 can be broken down as follows:

Total Revenue (2023): $810 million

• Ads: $788.8 million

Advertising revenue on Reddit comes from various formats including display ads, promoted posts, and video ads. Reddit's unique community-based structure allows advertisers to target niche audiences effectively, making the platform attractive for advertisers seeking specific demographics.

• Reddit Premium: $1.7 million from 344,000 subscribers

Reddit Premium is a subscription service that offers users an ad-free experience, access to exclusive features, and the ability to give awards using Reddit Coins. Despite being a smaller revenue stream compared to advertising, it provides a steady source of income. Reddit Premium's consistent subscriber base highlights a loyal segment of users willing to pay for enhanced features and an improved user experience.

• Data Licensing and Marketplaces:

Specific figures were not detailed, but it is a smaller component compared to advertising. If the AI market continues to grow at the same pace, the data licensing business is expected to explore and become a significant part of Reddit’s annual income. However, we do not see if surpassing ad revenue in the short term.

Reddit is also building a thriving economy within its platform, focusing on commerce within its communities. Subreddits dedicated to buying, selling, and trading goods and services provide users with a trusted environment for transactions. Reddit marketplaces is an ongoing development that is here to contribute significantly the bottom line.

Reddit Management

Reddit's management team is composed of experienced leaders from diverse backgrounds, each bringing unique skills to the platform. Here are the key members of the leadership team:

Steve Huffman (Co-founder and CEO)

Steve Huffman, the co-founder and CEO of Reddit, is the driving force behind the platform’s innovative spirit. A graduate of the University of Virginia, Huffman initially launched Reddit in 2005 alongside Alexis Ohanian. Huffman’s vision for Reddit extends beyond being just a discussion forum; he envisions it as a digital town square where communities can thrive.

Jen Wong (COO)

Jen Wong, Reddit’s Chief Operating Officer, brings a strategic mindset honed from her extensive experience in media and technology. Before joining Reddit, Wong served as the COO of Time Inc., where she led digital transformation initiatives. Her background also includes roles at AOL and McKinsey & Company. At Reddit, Wong oversees the company’s business operations, including advertising, partnerships, and growth strategies.

Chris Slowe (CTO)

As Reddit’s Chief Technology Officer, Chris Slowe is the tech guru ensuring that the platform remains robust, scalable, and secure. Slowe, who holds a Ph.D. in Physics from Harvard, was Reddit’s first employee and has seen the platform evolve from its early days.

Roxy Young (CMO)

Roxy Young, Reddit’s Chief Marketing Officer, is the brand builder responsible for shaping the platform’s public image. With a background in marketing leadership roles at Netflix and Hipmunk, Young has a keen eye for consumer trends and brand storytelling. Young’s strategies have been pivotal in expanding Reddit’s reach and attracting new users while fostering a sense of community among existing members.

Andrew Vollero (CFO)

Andrew Vollero, Reddit’s Chief Financial Officer, manages financial planning and analysis, ensuring that Reddit’s growth is sustainable and profitable. Vollero previously served as CFO at Snap Inc., where he played a key role in the company’s IPO.

Executive compensation

There have been a lot of memes about the CEO’s compensation but $192M of this compensation was in equity. Also, most of the equity vests only if certain revenue targets are met.

Investors and Ownership

Reddit's growth has been fueled by substantial investments from heavyweights like Andreessen Horowitz and Sequoia Capital. In 2019, a $300 million funding round led by Chinese tech giant Tencent catapulted Reddit’s valuation to a staggering $3 billion.

Investments:

• 2005: Reddit received initial funding from Y Combinator.

• 2014: Raised $50 million in a Series B round led by Sam Altman, Marc Andreessen, and other investors, valuing the company at $500 million.

• 2017: Secured $200 million in a Series C funding round led by Andreessen Horowitz, bringing the valuation to $1.8 billion.

• 2019: Reddit raised $300 million in Series D funding led by Tencent, valuing the company at $3 billion.

• 2021: In a Series E funding round, Reddit raised $250 million, resulting in a valuation of $6 billion.

• 2021: Fidelity Management and Research Company led a $700 million Series F round, pushing the valuation to over $10 billion

Stakeholder chart:

Competition

In a world dominated by social media giants like Facebook, Twitter, and Instagram, Reddit holds its ground with a unique value proposition. Unlike its competitors, Reddit thrives on anonymity and long-form content, fostering in-depth discussions and genuine connections. While platforms like Discord and Quora offer similar experiences, Reddit’s sheer diversity and scale of user-generated content set it apart.

• For Seeking Information—Google, Amazon, YouTube, Wikipedia, X, and other news sites. Some users are also turning to LLMs such as ChatGPT, Gemini, and Anthropic.

• For Entertainment—Meta (including Facebook, Instagram, Threads, and WhatsApp), YouTube, Snap, X, TikTok, Roblox, and Twitch.

• For Passions and Hobbies—Facebook Groups, Discord, X, and Pinterest.

• For Peer-to-peer Commerce and User Economy—Facebook Marketplace, Nextdoor, Craigslist, Poshmark, Etsy, and Roblox.

Financials

With over 430 million monthly active users and a valuation soaring past $10 billion as of 2023, Reddit's influence is undeniable. Revenue streams from advertising, premium subscriptions, and virtual goods have solidified its place as a profitable powerhouse, poised for even greater financial heights.

Revenue increased $137.3 million, or 21%, compared to the prior year. The growth in revenue was due primarily to an increase in impressions delivered as a result of strong DAUq growth, which outpaced the growth in pricing during the same period.

Quarterly Financial Performance: Steady Growth

Daily active users (DAUs) paint an equally compelling picture. In Q1 2021, Reddit boasted 27.5 million DAUs in the US and 27.3 million globally. Despite a slight dip in Q4 2021, with US DAUs at 25.7 million and global DAUs at 28.2 million, the numbers rebounded in 2022. By Q1 2022, DAUs had climbed to 26.9 million in the US and 30.6 million globally, continuing this upward trend through Q4 2022. But it was Q4 2023 that brought the most dramatic growth, with US DAUs soaring to 36.4 million and global DAUs reaching 36.7 million. This surge underscores Reddit’s increasing engagement and appeal, both domestically and internationally.

The image depicts the quarterly Average Revenue Per User (ARPU) for Reddit from Q1 2021 to Q4 2023. Over this period, ARPU shows significant growth, starting from $1.44 in Q1 2021 and peaking at $3.49 in Q3 2022. Despite some fluctuations, such as a notable drop from Q3 2022 to Q1 2023, the general trend is upward. The year-over-year (YoY) growth percentages indicate strong annual gains, particularly in the earlier quarters (76% in Q1 2021 and 32% in Q3 2021), while quarter-over-quarter (QoQ) growth shows more variability, including declines in Q1 2022 and Q1 2023. Overall, this suggests that Reddit has been successful in increasing its revenue per user, despite some periods of slower growth or decline, reflecting a positive long-term financial trajectory.

Reddit’s Q1 2024 results highlight its unwavering focus on revenue growth and user engagement. While specific net income details remain undisclosed, Reddit uses non-GAAP financial measures like Adjusted EBITDA and Free Cash Flow to provide a transparent view of its financial health and strategic priorities. This approach ensures that investors and stakeholders have a clear understanding of Reddit’s core operating performance, even as the company continues to invest in its future.

Final thoughts

Reddit's IPO has been a success, with the stock price rising by 23% since the launch six months ago. However, the platform's future growth and valuation largely hinge on its ability to leverage AI and Large Language Models (LLMs) effectively.

Reddit is likely to continue promoting its AI/LLM growth narrative, which will attract investors. However, the key question remains: can Reddit deliver sustainable growth in this area?

While the IPO did well initially, driven by IPO FOMO and a recent drought in tech IPOs, there's no immediate rush for retail investors to jump in. Historically, most IPO stocks have declined six months post-launch. Therefore, if Reddit is a good buy now, it will likely remain so later. Investors might prefer to wait and see how Reddit's AI and data monetization strategies unfold rather than succumbing to FOMO.

A successful Reddit IPO could pave the way for more companies to go public. With several companies in the pipeline, a successful IPO for Reddit might just be the catalyst needed for a new wave of market entries.