Forget tendies, I’m here for the karma payouts
Overview
If you have some niche interests or just like some plain old doom-scrolling, Reddit will have you covered. The company’s business model is classic ads for eyeballs but the company’s edge is in showing ads related to the users’ immediate interest. Ads are contextual whereas they are personalized for giants such as GOOG or META.
Share price
Since its IPO in March 2024, the company has been somewhat volatile, after smashing through its IPO price of $34 to reach ~$230 by March 2025. It then dropped to ~£100 in April and has now recovered to ~$230 once again as of today (22nd Aug 2025).
Growth
Reddit is a minnow compared to the magnificent ones but it too is growing rapidly and once it is of a decent size, you would expect management to turn up the profit margin without much difficulty. The userbase is growing rapidly (Daily Active Users +43% in 2024) and Average Revenue Per User grew 13% in 2024. This potent mix meant the top line was up by 61%. We expect continued growth and have shown so in our APRU And DAU assumptions in the financial model.
Critical Factors
Continuing the high growth of user engagement and monetization of the engagement will be critical moving forward. The company is clearly still in attack mode after its recent IPO as it has doubled its R&D spend YoY to almost $1bn. However a significant amount of this is stock-based comp for the software engineers. The company must attract major advertisers and create ad formats that drive real engagement, making promotions feel more relevant and less likely for users to instantly swipe past as unwanted sales pitches. It is well placed to make something out of the AI boom too, as it has growing mountains of content – it is not clear yet exactly how, but the company should be one where AI benefits rather than tears down
Metrics
The company continues to make a loss, in fact in 2024 the loss was 5x that of 2023 at ~$500m but over time you would expect management to be able to rake it in when they feel a plateau on the J-curve horizon. Reddit trades at 31x sales, 10 years ago this was absurd but is now a well-trodden path to big-tech dominance There is limited interesting items on the balance sheet, Goodwill is low and there is no real debt. Shareholders should expect to get diluted over time as large share-based payments are made to set for life employees. The RDDT financial model is available to download – forecasting the company financials for 5 years
Bonus – Financial Modelling Tip of the Day
When building financial models, it’s important to use a consistent color scheme to make them easy to read and follow. A common convention is blue for direct inputs, green for inputs pulled from elsewhere or linked assumptions, and black for calculations and outputs. This approach not only improves transparency but also helps collaborators (and future you) quickly distinguish between assumptions, linked data, and model results.