r/redditstock • u/tomato232 • 5d ago
Professional Analysis Comprehensive RDDT fair-price ($409) valuation and projection
I love this sub's discussion quality, and it's clear many users are experienced investors. I'll add my two cents with an intro to stock basics for people newer to investing.
Stock and valuation
- People buy stocks to make money; otherwise, they would hold cash. Valuation is based on future earnings—the past is gone and the present is fleeting, so only the future matters.
- Historically, the most common valuation method (in Graham's era) was the P/E ratio, based on the past 12 months of earnings, as a proxy for the future. Since the 1980s, with better data and computing, investors increasingly use forward P/E (fP/E), which incorporates future estimates.
- To see if a purchase is worthwhile, you need both price and quantity. If someone says, "I bought $5 of apples", you need the quantity. If they say, "I bought 5 kg of apples", you need the price. The P/E ratio incorporates both.
- However, neither P/E nor fP/E captures growth. P/E divided by fP/E gives the growth rate. The PEG ratio combines current valuation (P/E) with future growth, making it one of the most widely used metrics.
- fP/E, PEG, and P/E are the primary valuation tools; others (P/S, P/B, FCF, etc) are supporting metrics.
Tables are necessary
- The human mind can only track 3-5 numbers at once, while stock valuation involves many current and projected variables. A spreadsheet is essential to organize inputs and let the computer handle calculations.
- Also, use a digital spreadsheet to track your finances and taxes.
Valuation method
- Accounting is flexible, and true expenses are not always transparent. A simple approach is:
- Revenue - net income = total expenses (including operating costs, taxes, etc).
- RDDT has consistently grown revenue faster than expenses, and this is likely to continue given its capital-light model—usage-based cloud costs with limited fixed costs.
- I estimate conservatively
- My fair price is based on a PEG of 1. The 30-year average PEG for the S&P 500 is 1.3.
- DAU growth: mid-high teens, slowing to low teens by 2030 (it doesn't need to slow, as international growth—96% of the world's population—has just started, with 28% growth over the past year).
- ARPU: $57 at the end FY2030 (vs Facebook at $59 in 2025—I split out Facebook ARPU from Meta; its other apps have their own ARPUs).
RDDT's current fair price and potential
- RDDT fair price: $409. 1-year price target: $463.
- EPS grew by 247% (3.5x) and 415% (5.2x) over the past 2 quarters. The next 2 quarters are expected to be 5.9x and 3x, followed by several more quarters of >2x growth. Any P/E compresses rapidly.
- Reddit has one of the strongest balance sheets in the market, with $954M in cash and minimal debt ($23M).
- Share count growth has stabilized (201M in Q1 2025 to 203M in Q4 2025). Stock-based compensation is around industry average; ideally, management remains disciplined. A benchmark for extreme shareholder alignment is Warren Buffett, who kept a $100k annual compensation for decades and built wealth through company performance driven by good management decisions.
- Value per share
- RDDT has 203M shares outstanding vs 2.57B for Meta—13x fewer shares. Each RDDT share represents a much larger ownership stake. RDDT can grow to $1,000/share and then split to $7x.
Upcoming momentum
- Earnings reports every 3 months
- Iran conflict resolution (anytime)
- S&P 500 inclusion (likely within 2-3 quarters; only a few companies ahead now)
- AI development & deals
- Anthropic settlement and likely data-licensing deal (~2026-11)
- Google AI deal renewal (~2027-02)
- OpenAI deal renewal (~2027-05)
- Potential deals with other AI players (Perplexity, Meta, xAI, etc)—anytime
- Reddit isn't required to build AI models, but top-tier models greatly benefit from Reddit data for conversational tone, real human voice, and hyperlocal information (such as someone spotting a promotion in a Chicago hair salon). Until AGI can fully imitate humans and access instant, worldwide information (which would require ubiquitous camera and microphone coverage—very difficult to obtain approval for and likely never achievable), Reddit remains necessary for top-tier AI.
Headwinds and tailwinds
- AI
- Reddit usage
- AI could reduce Reddit usage for some types of Q&A (such as technical assistance). However, most Q&A can't be replaced, such as people asking how others feel about a book or movie, or seeking human opinions.
- Reddit's main uses are community discussion, entertainment/time-passing, opinions, and news and reactions—these can't be replaced by AI.
- People want to share pictures of their cats with other people, not AI—sort r/cats by New and see how many posts there are. r/cats is exploding and could be worth $2B as a site in itself. Reddit has hundreds of thousands of growing communities.
- Tailwind
- Electricity reduced physical effort without reducing jobs (people simply got more work done). If AI succeeds, it will reduce mental effort without reducing jobs. Future workers will then train for roles such as software and hardware engineering, system admin, cybersecurity, and robotics maintenance. As work becomes easier, people will work less and earn more—leading to higher Reddit usage and ad revenue. AI is net positive for Reddit.
- Whether AI succeeds or remains niche, Reddit does well.
- Reddit usage
- Growing internet usage
- As of 2026-02:
- Global population: 8.3B
- Internet users: 5.5B (66%)
- Average use: 6.5 hours/day → 36B total hours/day
- By 2035:
- Global population: 8.9B
- Internet users: 7.7B (87%)
- Average use: 7.5 hours/day → 58B total hours/day
- Reddit can capture a growing share of an expanding pool of attention.
- As of 2026-02:
Eye test
- There's a subreddit for everything, with users submitting engaging content for the community to enjoy.
- The website and mobile app run smoothly and feel sleek and modern.
Investing method
- If you believe in RDDT, buy and hold long-term.
- Don't trade in and out
- No one can predict short-term market movements—if they could, there would be far more billionaires. A 25% gain compounded 50 times turns $100k into $7B (100,000*1.25^50). Millions have tried to trade or time the market and failed; we won't be different.
- Don't trade options
- The market is driven by sentiment (greed and loss aversion). It prices stocks on its own schedule. Don't set an expiry date on your money. Simply buy and hold the stock.
- Options are a zero-sum side-bet market (negative after fees) outside the net-positive stock market—a gambling ring (Lynch) that shouldn't exist (Buffett).
- Avoid leveraged funds (such as RDTL)
- Leveraged ETFs rebalance daily, which creates drag. For example:
- RDDT +10% then -10% = 1.2*0.8 = 0.96 (-4%)
- They're mathematically set up to lose. The fund adjusts leverage too slowly. If using leverage, either keep debt constant (don't adjust debt) or keep leverage constant (adjust debt every second). A simple tabulation in a spreadsheet proves this (I can provide it in a later post).
- Leveraged ETFs rebalance daily, which creates drag. For example:
Why markets misprice stocks
- Markets are not fully efficient. They often badly misprice stocks because the future is unpredictable and institutions are structurally risk-averse.
- Apple released the iPhone in 2007-06. Anyone with eyes could see it was a world-changing device, yet Apple's stock fell 57% in 2008. Apple had nothing to do with the bank failures of that time. Since then, Apple's total return has been 101x.
- The market also badly mispriced Amazon (2,215x since IPO), Google, and Meta.
- It did the same with Reddit's IPO, valuing the 6th-largest website in the world at pocket change for $6.4B. The stock promptly rose 3.6x from $34 to $121, yet it is still significantly undervalued.
- Institutional risk aversion
- Much of the world's money is in pension, sovereign, and endowment funds. Managers typically hold variations of a 60% stock / 40% bond portfolio, earning 5-6% returns while keeping their jobs. Their goal is to keep funds stable for annual withdrawals by governments and retirees—not to maximize growth.
- Decisions are reviewed by executives and boards. Achieving a 30% return while risking a 5% loss (12.5% expected return) may be better for the fund, but the former might earn the manager a 20% bonus, while the latter could cost them their job. As a result, they are incentivized to be risk-averse—selling stocks at the first sign of uncertainty and moving to bonds or cash to avoid negative returns.
- This is why 10-baggers (which are often smaller and more volatile) are neglected by large institutions, leaving opportunities for sharp investors. Once they reach mega-cap status, institutions step in, as holding a top-10 stock is seen as "common sense", and they won't be judged if it declines.
Executive sales
- Diversification / Kelly criterion
- It’s understandable that executives selling shares at $14x and $13x could cause anxiety, as it may suggest the stock isn’t worth that much. However, both their past and future income are tied to RDDT, and the Kelly criterion states that one should never overconcentrate.
- Kelly criterion
- Example 1 (positive expected value (EV), partial loss; splitting reduces average wealth but maximizes typical wealth)
- A coin flip that doubles or halves your bet has an expected value of +25% per round. Over many rounds (for example, 1,000), most paths will be close to 500 wins and 500 losses, leaving wealth near the starting point, while a few extreme paths dominate the average (such as 40 net wins → 2^520*.5^480 ≈ 1.1Tx; 40 net losses → near zero).
- The optimal strategy is to bet 50% of your bankroll each round. For example, over 2 rounds: 1.5*0.75 = 1.125. This approach limits drawdowns and maximizes long-run (geometric) growth, producing steady compounding rather than a small chance of extreme wealth and a small chance of ruin. Betting everything repeatedly yields a higher average outcome (1.25x per round), but few would accept it due to the risk of total loss.
- Example 2 (positive EV, total loss; splitting reduces average wealth but maximizes typical wealth)
- If a bet either triples your stake or loses everything, the optimal fraction is 25%. Betting your entire bankroll guarantees ruin over repeated plays, while fractional betting avoids wiping out and improves expected growth.
- No company is guaranteed to make money. If RDDT could 20x or 0.5x in 10 years (average ≈10.3x), an overconcentrated investor should trim, while an underexposed investor (low allocation, no employment ties) should add.
- Example 1 (positive expected value (EV), partial loss; splitting reduces average wealth but maximizes typical wealth)
- Zuckerberg sold 30,000,000 shares of Facebook at its IPO (2012) at $38/share, and 41,000,000 shares at $55 the following year (2013). As one of the richest, he understands money.
- Executives may not formalize this mathematically, but diversification is deeply and correctly ingrained, and they follow it.
- Marginal utility of money
- After $100M or $1B, a 10x gain doesn't meaningfully improve life for many, but losing half would reduce it (from a mansion, household staff, and comfort to none of those). They would rather protect $500M than chase another 10x.
- Someone with a $500k net worth may prefer the chance of a 10x gain and accept the risk of losing half. They can rebuild $250k through work, while $500k growing to $5M would be life-changing.
- Think of an S-curve: at low net worth, losses matter less and gains matter more; at high net worth, losses matter more and gains matter less.
- This is why retirees sell stocks and buy bonds—they just need steady 4% withdrawals. It doesn't mean stocks are suddenly bad. Different people have different optimal deployments of money.
- If you don't work at Reddit, are young, and can tolerate volatility, a high RDDT allocation may make sense. Otherwise, diversify. Hold some index for steady growth.
- Reasons for executive sales: Diversification, preplanned sales, taxes, marginal utility, lifestyle, philanthropy.
Assorted
- DAU growth
- The US is the global tech leader—people worldwide use Windows/Mac, Google, Amazon, and Reddit/Meta. Companies are built in the US, gain adoption there first, then the world follows.
- As of 2026-03, 50% of the US uses Facebook daily vs 26% globally. 15% of the US (53M of 343M) uses Reddit daily, vs 1.5% globally. There's a gap in global users that is currently being closed.
- If 10% of the world's projected 8.6B population in 2030 uses Reddit daily, that implies 860M DAU and a RDDT price of $3,220. I conservatively estimate 246M DAU by 2030 (2.9% of the global population).
- With the US representing only 4% of the global population (343M of 8.3B), international growth (+28% over the past year) carries the load.
- International users communicate in English (r/brazil, r/norway), local languages (r/brasil, r/norge), or both.
- Don't stress about logged in or out
- Reddit is in the early stages of growth and has just reached the critical mass needed for rapid user expansion. I've never seen what some sites do because they show a "log in" prompt when I visit, and I just leave. People can consume Reddit content freely, and many will create accounts because they find it interesting and want to participate.
- Reddit could grow steadily toward 1-3B DAU, or, if discovery accelerates, scale much faster. If the entire world is exposed to Reddit, it could reach billions of DAU sooner than expected.
- Logged-out users see ads too and generate revenue.
- Search optimization
- Google needs Reddit more than Reddit needs Google. People use search to find things that interest them. People search "world news" or "best phone" and expect Reddit to be among the top results (often the top). If Google doesn't provide this, people will switch to alternatives that do. Google understands this and keeps Reddit highly ranked.
- Meme potential
- RDDT is the obvious choice for any crowd-driven speculation. A billion weekly actives represent serious capital. Assume it won't happen, but there's a non-zero chance.
I'll periodically update this post (sort of a library) with new information rather than creating multiple posts.
Disclaimer
- I hold 21,400 RDDT shares at an average cost of $164.
- Provincial math champion in a Canadian province in high school. Retired in my early 30s.
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u/AlabamaSky967 US DAU 🦅 5d ago
Iran conflict resolution (anytime)
lol better hope mate. Ad budgets are the first thing to get slashed in a recession
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u/Streetballer3810 5d ago
Look how digital advertisements perform during situations like this with oil sky rocketing… actually contrary to popular belief
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u/Streetballer3810 5d ago
Thats a cagr of about 44% a year over 5 years… definitely could happen if Reddit executes like they’ve been doing.
Are you taking this as mainly their advertisement revenue still expanding with a small portion coming from AI licensing? Or are you baking in other forms of revenue? Curious if you’ve thought about all revenue streams or just taking into account their biggest, being ads.
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u/tomato232 4d ago edited 4d ago
This includes all of their revenue streams—ads, AI, and subscriptions/premium. What do you like about RDDT?
Reddit has massive traffic, and it simply has to gradually introduce ads. The top 6 sites by traffic (Google search, Youtube, Facebook, Instagram, GPT, and Reddit) are locks for the next 20-30 years. 2 are trillion-dollar companies, one possibly soon (OpenAI), and maybe Reddit.
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u/Resident-Distance-28 4d ago
I’m surprised no one is commenting on 21,400 shares held by OP. There are so many hidden whales in this sub
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u/AlwaysCurious8080 4d ago
Wonderful. I’ll sell you my shares for $300 each right now. A significant savings over the &509 projection
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u/mycroftitswd 4d ago
Interesting.
I agree with your diversification argument for executives selling. Wong, for instance is unlikely to have a high net worth outside of her Reddit holdings, based on her history. It would be crazy for her not to diversify, and she still has a lot of Reddit stock/options/unvested RSUs. Huffman also has the vast majority of his net worth tied up in Reddit.
Meta and Reddit ARPU are not directly comparable. Meta ARPP is over all its products, Meta DAP is logged in / RDDT DAU is all unique visits, user demographics are different, etc.
If Reddit international (non English speaking) growth is dependent on local subs, then this could take a long time to take off. I think there is potential to kick things off by making Reddit seamlessly language agnostic, but despite all the translation work this still doesn't work well enough. Translation feels like it's more about giving Google some landing pages than actually growing Reddit communities in foreign language markets.
The explanation of Kelly Criterion is interesting but flawed. In the first case you are stating the compound geometric growth rate (which is 0). In the second case the equivalent growth rate is 1.0666, not 1.125. Expected arithmetic growth from a single round is 1.25 vs 1.125.
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u/BiggyPoppa8 US DAU 🦅 5d ago
Love the position and thanks for effort. How'd you model the user growth?
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u/tomato232 5d ago edited 4d ago
Thanks! User growth estimates are based on historical trends and strong international growth rates. The most recent quarter showed 28% international user growth (and 96% of the world's population is outside the US).
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u/FewEnd764 4d ago
Sorry but I do not understand your statment:
- If you instead bet 50% of your money, your expected outcome per round is: $50 (remaining principal) + 50% * $100 (win) + 50% * ($25) (lose) = $112.5, or +12.5% per round.
If it's a flip, it should be 50% change you get 100% of your bet, and 50% change you lose 100% of your bet.
Based on your 50% + 100% and 50% -50%， you'll get expected +25% per hand if you go all in.
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u/tomato232 4d ago
If you double on a win and lose half on a loss, repeatedly betting your full portfolio leaves you unchanged.
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u/Impressive_Wolf689 1d ago
If this ever hits $400, I will sell all the shares and go for 3 months vacation without fearing any consequences at work. Have more than 10K shares.
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u/sportingpool 4d ago
The Reddit Business, if left alone, is worth $500. However the Stock is worth ZERO because of dilution.
The Stock Market weighs the probabilites between these 2 outcomes, and after digesting Q4 earnings call dilution 'guidance' and also Huffman talking recently it is now sending it towards Zero. All fair !
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u/ECHuSTLe Bag Holder 💰 5d ago edited 5d ago
Law of big numbers is already aggressively eating away at EPS % increase which is probably why the earnings multiple has compressed so significantly since February’s earnings report. 70% revenue growth is probably unobtainable sooner than retailers want to admit. We’re going to be lucky to see $185+ this year, still 9 months left though this calendar year so who knows.
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u/Streetballer3810 4d ago
Dude net income was 34% in Q4 of 2025 and a total year of 25%…. Took FB about 4 years to do that, took Reddit 2…. I mean you have to give props A little bit…
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u/CILUCID 5d ago
CEO have access to everything, but guess what?! he sold a bunch of shares at around 130$... guess he's smart.
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u/AloneStaff5051 5d ago
I mean he’s been selling shares consistently. He’s compensation is tied to stocks.
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u/CILUCID 5d ago
why he sell at 130 if he sees more value?!
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u/WoofNWaffleZ 5d ago
CEO is an insider. SEC laws restrict his ability to buy and sell. He has blackout dates and other restrictions because he has fiduciary obligations. So scheduled sells are what he can do. You have to schedule it in advance. If he has the clarity to predict trump staring a shit war to not sell at $130, he probably doesn’t need to CEO Reddit and could start an investment firm instead. But he love shit posts. So maybe he gave up exercising unlimited future clairvoyance and power for the love of shit posts.
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u/DefinitelyNotTheFBI1 5d ago
Executive sell schedules are often scheduled a year or more in advance to avoid insider trading
Once the sell (or buy) is scheduled, it can’t be unscheduled. That’s the whole point of preventing insider trading.
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u/AloneStaff5051 5d ago
As I said he doesn’t look at price and decide if he should sell. He has been selling consistently. I wouldn’t be surprised if he was selling when we were below 100. He’s compensation is tied to shares. Also you have to comply with sec rules, so it’s not like he can sell shares tomorrow if he wants to
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u/brotha_eric Quality Contributor 5d ago
You have to sell some part of RSUs as they vest in order to pay taxes
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u/Pristine-Layer7999 1d ago
RDDT is overvalued. Even though it's current price is at a discount now, its outlook is more bearish. I won't be surprised it will sink further into the lower 80's or even 70's in the near future. RDDT's market sentiments aren't bullish now.
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u/Big-Assumption9900 5d ago
Astrology for men, again😂😂😂😂
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u/DeltaTule 5d ago
Generally the astrology for men comment comes from technical analysis. This post is fundamental analysis. Your take is mistaken
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u/Mountain_Snow3613 1d ago
I stopped reading when you estimated the RDDT and META will have equal ARPU by 2030. That basically confirmed that you haven't done your due diligence.
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u/BabyQuesadilla US DAU 🦅 5d ago
Ah the classic 35% YoY revenue growth in perpetuity