Reddit (RDDT) $164 - I own it and plan to add more:

Reddit is slowly becoming a favorite company of mine, and even though there are times when the market has been irrationally harsh to this stellar social media leader with huge competitive advantages, it has bounced back and then some. I did pick up more shares, which are already up 20% after earnings.

The positives are plenty:

Let’s start with stellar earnings, which beat by a country mile across every major metric: 

1. Revenue came in at $663.4 million (vs. $609.7M expected, an 8.8% beat), GAAP EPS of $1.01 (vs. $0.56 expected, a 79.1% beat), and Adjusted EBITDA of $266 million (vs. $225.6M expected, a 17.9% beat). Net income swung dramatically to $204 million, up from $26 million in the year-ago quarter, while operating cash flow expanded 145% to $312 million.
2. Ad revenue rose 74% year over year to $625Mn, and other revenue — which includes data licensing which it sells to LLMs for content grew 15% to $39Mn. 
3. U.S. revenue was $525.6 million, up 67% year over year, and International revenue galloped ahead at $137.8 million, up 76% year over year. Performance marketing drove sharp revenue outperformance, growing more than 100% year over year. Ad revenue was strong across all top-15 industry verticals. 
4. It closed the quarter with 126.8 million daily active unique users (DAUq), up 17% from a year ago. Weekly Active Users rose faster at 22% YoY, with the platform reaching nearly 200 million weekly U.S. users, with a daily U.S. base of approximately 50 million — with a stated goal of reaching 100 million daily U.S. users. 
5. Average revenue per user (ARPU) came in at $5.23, topping analyst estimates of $4.81. U.S. ARPU was $9.63, ahead of the $8.53 Wall Street was projecting. Only Meta has higher ARPUs amongst comparable social media platforms.
6. With gross margins over 90% and an adjusted EBITDA margin of 40%, cash flow exceeded a record $300 million.

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Guidance

Revenue guidance for Q2 2026 is $720 million at the midpoint, above analyst estimates of $710.6 million. EBITDA guidance for Q2 is $290 million at the midpoint, above analyst estimates of $282.8 million.

Reddit’s competitive advantages

1. Content and sub reddit moat: Reddit's conversations from its sub-reddits is a unique moat, and a model extremely difficult if not impossible to emulate or recreate at scale. 
2. Commercializing conversations: Management emphasized that around 40% of conversations on Reddit are commercial in nature — where people are actively discussing products, services, and purchase decisions — and that these conversations are "uniquely influential." 84% of shoppers say they feel more confident in their decisions after consulting Reddit.
3. Licensing revenue: Google and OpenAI are two of Reddit's biggest data licensing partners. While licensing revenue is small the benefits from citations increases its reach and mind share beyond financial terms.
4. Leveraging AI profitably: Search DAUs, WAUs, and queries are all up meaningfully, YoY with Reddit Answers becoming more "agentic" — now allowing users to compare things (e.g., two movies) and integrating product catalogs so search results link directly to products. I had highlighted Meta’s 33% quarterly revenue growth as a result of better ad-targeting through AI (they are spending $135Bn this year!), and am delighted to see Reddit increase revenues confirm the same momentum.

Capital-light, high-margin: Reddit plans to spend only $1Mn in capex, and in Q1-2026, it generated operating cash of $312Mn on 663Mn in sales, a whopping margin of 47%.

Growth catalysts

Performance advertising and Reddit Max: COO Jen Wong highlighted on the call that performance advertising — ads designed to drive measurable actions like purchases, sign-ups, or installs — represented more than 60% of total ad revenue in Q1, with conversion volume doubling year over year. On Reddit Max: Wong said Reddit Max adoption remains "a top priority for the sales team." Beta advertisers using Reddit Max saw a 17% drop in cost per action and 25% more conversion outcomes, with around 50% of those advertisers using AI-powered creative features. 

Dynamic Product Ads (DPA): DPA delivered over 90% higher ROAS year over year, and third-party brands saw conversion campaigns outperform by 40%. A Shopify integration announced in March is expanding the ecommerce advertising ecosystem.

International: While international revenue grew 76% year over year, outpacing  67% domestic growth, international expansion requires more native communities and localized content to drive long-term growth, which is a focus area for them. 

Challenges

The FTC continues to pursue a non-public inquiry into Reddit's licensing of user-generated content for AI training, examining whether its sale of user data constitutes an "unfair or deceptive trade practice." Additionally, the EU AI Act — which moved toward full enforcement in early 2026 — has put a spotlight on Reddit's data practices in Europe. 

Reddit decided to stop disclosing logged-in/logged-out DAU breakdowns  last quarter, which led to the stock dropping precipitously. Q2 2026 will be the final period disclosing logged-in/logged-out breakdowns. I too was disappointed but I believe it will not affect its growth or valuation At least, starting in Q3, user disclosures will focus on regional DAU and WAU

Valuation

Reddit’s valuation is surprisingly reasonable even after a 26% jump in the past year and almost 4x return from its IPO of around $46. Besides, it's also off 41% from its all-time high of $286. It sells for 30x earnings growing at 27% and 8x sales slated to grow over 22%. This is a company with over 40% in operating margins with just $1Mn in Capex. What’s not to like?

It’s a great opportunity to buy and hold for the next three years.

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