$RDDT just posted its best financial quarter ever. Revenue +53%. 44.9% adjusted EBITDA margin. $363M in FCF. The stock fell 29%. Why: Google’s AI Mode is cutting search referrals. Management warned total daily active users could fall by a low double-digit percentage in Q4 if current trends continue. This isn’t unique to Reddit. AI summaries and zero-click search are reducing organic referrals across publishers and the broader open web. Reddit is one of many destinations feeling the shift. But over 80% of monetization comes from logged-in and app users. Even a harsh case would cost an estimated ~4% of quarterly revenue. Google sets the reach. Logged-in users set the revenue. The price: ~14x forward P/E, a record low for RDDT. $3B in cash, no debt. Licensing is the optionality. It’s ~5% of revenue today, and contracted revenue runs off after 2027. Moving toward a logged-in experience makes the archive harder to scrape for free. That strengthens Reddit’s hand in the Anthropic suit and future renewals. A settlement or new deals would be upside. The risk: US logged-in daily users are up just 1% year over year, although they grew sequentially. If they start falling, the bear case gets stronger. My view: dead money for a while. Long term, it comes down to whether management delivers. I’m still digesting the results, but I’m leaning toward holding. Feels like many rushed to sell, although I can’t blame them either.
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2 Comments
Shael @nickel333 · 5h
I sold this right before earnings for some profit. I had a bad feeling about this... this stock is very risky...
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