Would anyone with advertising experience like to weigh in? Seems like Reddit partners with CRM companies like hubspot to help advertisers have access to useful data. This seems to answer questions some of us had in a post yesterday.
I was gifted this a few years before pope was coach and recognize his signature on the picture but I’m not familiar with the others. Also any details about the picture itself would be helpful. Was this some sort of collectible back in the day?
It took around 2 years of on and off learning the game. Took a couple of multi month breaks. Does this seem like a normal time frame? Also what study tips helped you reach a new high around this elo when you were here? Trying to keep improving!
News has recently released of wikihow suing ChatGPT for scraping 11,000 how to articles for LLM training purposes. Eventually the major AI model companies will be unable to scrape the endless information on the web for free under threat of law. It is my opinion that rather than negotiating many data license deals with various niche websites, the big players (Google, Anthropic, and open ai) will need to find a one stop shop for data on a wide variety of topics to stay profitable. Reddit immediately comes to mind as one of the best available location for finding data on the largest amount of topics. If this reality comes to fruition then Reddit is right to play hardball as the lawsuits pile up against the AI companies. The clock is ticking and it is the AI companies who have their backs up against the wall.
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This is going to be a long post but I believe due to the sentiment it is necessary and I am not sure if I will be downvoted into oblivion for this take but just know I do have a long position in Reddit and I’m trying to make this post as fact based as possible while avoiding inserting my own bias. Also be aware I am not attempting to defend the selling decisions of C-Suite, the billionaires can defend themselves.
Insider sells are scary, they can hint that the board of directors has little faith in the company that they lead. It can also mean many other things including selling to cover tax cost of the exercised options the executives are issued as compensation for their work.
The first four images on this post show the recent sales by the (in)famous Jen Wong as well as my best guess of the charts reaction to her sale. The most recent sell by Jen Wong was around 75,000 shares and was a total of 1% of the daily volume. However since these shares are prearranged sales usually buyers are already found and these sales are not released on the open market. You can clearly see there was very little market reaction to this sale. The bigger reaction likely comes from a market reaction to this sale after completion. Potentially people spooked from the sale and sentiment spreading around the shareholders being negative already does not help.
The 5th and 6th image show something most do not talk about. This year has not been strictly sales by C-Suite. Sarah Farrell has made two purchases with one purchase around $215 per share in February and another around 145 (yikes) just a month later. These shares have not been sold.
The first image speaks the most to me. At the top of the page you see the volume of Jen wongs share sales since RDDT has went public. Since these initial sales and despite them, Reddit has managed to hit 2 new all time highs and the sales are not concentrated near the top. They are evenly distributed even during downturns. (Shows prearranged sales not based on sentiment.) in total, the c-suite has sold 1.1 billion in shares since going public. The share repurchase program nearly completely cancels out the sales by c-suite.
I will conclude by saying Insider selling is never a good thing for shareholders. It can hurt investor sentiment cause volatility around expected sale dates and be a distraction. But I will say it is not even close to Reddits greatest threat. We must continue to watch revenue grow to shrink the margin of revenue to compensation or this selling will become a problem. What Reddit needs is to attract institutional investors who will actually be moving the needle unlike the negligible insider sales. Larger deals with AI giants will attract these valuable investors.
P.S. come on Sarah Farrell let’s see an insider buy soon.
After the S&P 500 inclusion I figured now was a good time to re-run my analysis on Reddits valuation that I ran when I initially opened my position.
I use a few different ratios to help make my evaluation. PEG ratio which I get from multiple sources and take an average of the findings since it is a rather speculative ratio where the person calculating the ratio uses an expected earnings growth rate. For Reddit, this average PEG ratio is around .65. Generally, anything under 1 is considered undervalued.
P/E ratio is used to help find the expected growth in earnings. For Reddit in after hours trading we are around a 38 P/E ratio. By dividing the P/E ratio by the PEG ratio you can find the average Wall Street expectation for earnings growth in percentage. For Reddit this number is around 58% expected earnings. I tend to value a company on a 1 year forward looking basis so I take the current earnings per share TTM of 4.59 and multiply it by the expected 58% growth and that give us an expected earnings per share of around 7.25 future earnings per share.
Further applying that potential future earnings per share of around 7.25, I multiply that earnings number by a reasonable P/E ratio of 30 to assume the stock is trading at a general fair value for a growth stock. After this I arrive at my 1 year price target given Reddit reaches lofty goals of 58% growth in earnings of around $217.50 a share.
This valuation method is only useful as long as a company continues to meet or exceed expectations and Reddit checks those boxes for me as they continuously meet their own expectations. Given this fair value of $217 and we are trading around $176 in after hours we still have a near 25% upside in my forecast. I believe in Reddits ability to scale and will continue to update my model quarterly. Not financial advice but I rate Reddit as a buy even after this run.
I found an old Reddit account to come and give my take on the stock. I usually use Reddit from my web browser and logged off just because when I google topics I usually click the link that takes me to Reddit to read posts of bear/bull cases on the subreddits of stocks that I am interested in buying and at some point wondered why not check Reddit out as an investment.
The financials stuck out to me at first with revenue growth of over 60% y/y and a profit margin around 91% on the surface it feels like a no brainer. With a slightly deeper dive you hear the bear case mentioned quite a bit here with lots of complaining about SBC and insider selling (which I believe is a non-factor long term). Reddit is able to maintain such a high profit margin by offering the share compensation to its executives and in the long run this will help lower costs for the company as the company just repurchases the issued shares with the massive free cash flow.
The bigger issue will be user retention and growth internationally. One thing I’ve seen mentioned before is that Americans typically have trouble looking beyond our borders and that may be why investors hyper focused on the Q/Q decline in U.S. DAU and completely ignored the 18% y/y increase in international users. If Reddit is able to grow DAU worldwide and not just within the United States and increase the revenue generated per user they should continue to smash earnings estimates and maintain these impressive margins.
As someone who was usually a logged out user I never really thought to log in until I felt like I wanted to share my thesis on the stock, that may be the biggest issue with Monetizing the ad revenue of the users. Logged in users can generate a higher revenue per user since Reddit has more data on their interests based on subreddit usage and interactions. Reddit has begun trying to use walls blocking content of frequently non-logged in users (worked on me today) to get them to download the app. I believe the content in Reddit has me coming back to hear actual opinions of people rather than some LLM that will regurgitate any opinion you want it to have. Once logged in users may experience a sticky effect and keep coming back for the various subreddits on the site on whatever is interesting to them at the time.
I won’t get too much into the AI deal section of the company because most of that is hearsay at this point. But if Reddit is able to generate expense free cash flow from LLM training then that is just another cash flow source with extremely high profit margins. I expect Reddit will eventually reach a deal probably based around usage rates from each of the major AI models.
Overall I think Reddits share price has massive upside opportunity. A company maintaining growth of around 50% a year in revenue trading at a P/E ratio below 40 is a steal in my opinion. I can’t really grasp why it is valued so cheaply it is actually mind blowing. Maybe I’m wrong we shall see but this is definitely not investment advice, just an opinion on a site used for sharing them.