25 Jan 2026
Introduction
Reddit Inc, a social media site, went public on March 21st, 2024. Since the IPO, Reddit stock is up 376%, as of this writing, Jan 23rd, 2026, with the company having its first positive earnings growth quarter in Q32024. Reddit profits primarily through advertising, and secondarily through content licensing deals with Large Language Model (“LLM”) owners, OpenAI, and Google. The more impressions or “eyeballs” they get on their content, and thus ads, creates more money for Reddit, because from there, advertisement (“ad”) impressions convert partially to ad clicks, which then convert partially to purchases of products and services. Their business model is based on providing decentralized information to community-based Reddit threads and being paid for 1) the ads around the site and 2) for their data as a key training input for LLMs.
This article argues that the recent rise in Reddit’s share price is justified and that the stock remains undervalued relative to the S&P 500. The current share price fails to account for 1) several important beneficial psychological underlying trends that qualify under Charlie Munger’s 25 Psychological Tendencies and 2) asymmetric gain potential as an underappreciated AI play. For the reader’s ease of understanding, I have bolded the relevant psychological tendencies and included the word tendency to demark them for the reader’s attention.
Competitive durable advantages (“Moat”):
Reddit’s large number of subcommunities helps users pinpoint and discuss specific subjects of interest (e.g., restaurants, politics, health, medicine), with over 2 billion posts in total. According to their 2025 10-K, Reddit reports approximately 1.2 million posts and 9.7 million views per day. The massive amount of data Reddit hosts becomes part of their moat because it would be hard for another site to replicate such an amassment of text-based data when they don’t have the same headstart in years as Reddit. This accumulation of data on myriad subjects constitutes one of the powerful underlying psychological tendencies that Munger argues businesses can benefit greatly from if they are properly structured. That tendency is called Curiosity Tendency. Simply put, people are forever and contagiously curious for the most part, and Reddit positions itself to help satisfy the powerful and deeply curious nature of people while profiting at the same time.
Reddit’s value proposition as compared to other competitors is uniquely decentralized – people are allowed to comment on posts, and then the upvoted comment rises to the top. For example, if a Reddit post gets 2,000 upvotes, it’s likely to rise to the top of a popular thread. Highly voted-up comments and posts attract greater Social Proof Tendency. Social proof is the psychological fact that, for the most part, people are more likely to like something or interact with something that has popularity among the rest of the world, or, even more so, their peers.
Finally, Reddit benefits from the public’s increasing distrust of established sources of information. For example, more people rely on podcasts rather than mainstream news outlets such as CNN and Fox; health care authorities are less trusted; and there is growing dissatisfaction with traditional politicians and political parties, as evidenced by the election of Trump. This psychological trend is augmented by social proof tendency as people are becoming more distrustful of traditional sources of information in response to publicity about “fake news” and bias in the media, academia, and government authorities. Ironically, I will contend that authority tendency, the tendency that people trust authority to an extreme on certain matters, is now working in reverse because people associate established so-called authorities with having made bad calls on topics like Covid or on inflation. This psychological trend combines with social proof tendency as people become more distrustful of bad information because they notice other people becoming more distrustful of bad information which builds a positive feedback loop.
Reddit recently introduced new reward features, such as “Achievement Badges,” for its users and plans to roll out additional ones, including pay-for-content features, leveraging incentive tendencies to drive more content creation and, in turn, more advertising dollars and a greater moat. Finally, they paid many content creators in stock when they first went public (a very rare practice), creating greater incentives for content creation and, in turn, more opportunities for impressions and advertising revenue.
Total Addressable Market
When assessing the total addressable market, we can examine metrics for daily users, weekly users, monthly users, and users with accounts.
Reddit’s management focuses its discussion on Daily Active Unique Users (DAUU). Their DAUU was 116 million users in 2025Q3, a 19% year-over-year increase.
Average Revenue Per User (“ARPU”) was $5.04. For comparison, Meta’s ARPU was roughly $49.63 in 2024, while Snapchat’s was approximately $3 in the late 2024/early 2025 period. For their total addressable market, their DAUU growth rate has been slowing, while their ARPU has significant room for growth, assuming Reddit’s ARPU is conservatively one quarter of the distance from SNAP to Meta ARPU, or $14.57. Reddit has greater stickiness than Snapchat because text has been a form of communication for thousands of years. On the other hand, Reddit does lack the visually addictive component that Meta has captured.
Global Factors
According to the China Project, an online media, Reddit is banned in the country, excluding it from 1.4 billion people or roughly 17% of the world. Some Chinese can access Reddit through Virtual Private Networks (“VPNs”). The “rest of the world” DAUUs has seen rapid growth. As the world becomes more globalized and access to the internet and computers expands, Reddit is likely to benefit from a greater user base. They have global appeal and in 2024, announced they were bringing Reddit to more than 35 countries using a machine learning translation tool.
Key Insiders:
- Sam Altman, the CEO of OpenAI, owns 8.7% of Reddit, making him the largest individual noncorporate shareholder. He was previously on Reddit’s board as well. This creates an incentive, whether ethical or not, for Altman to make decisions that benefit Reddit.
- According to a transaction reported by a Form F on June 25, 2025, to the SEC’s Edgar database, CEO and co-founder Steve Huffman owns 3,636,413 shares of class B common stock of Reddit through the XYZ revocable trust. Reddit Class B shares have 10 times the voting power. Steve Huffman owns approximately 3% of Reddit, so he doesn’t have majority control over the company.
Financials (Share price, market cap, outstanding shares, revenue, assets/liabilities)
Reddit, which has approximately 189.5 million shares, currently trades at $218.8 per share, with a market capitalization of $41.46B. In the most recent quarter, their revenue was $585 million. They have $2.8B in current assets and $2.6B in stockholders’ equity, reflecting, in part, a high cash balance for a technology company. They pay zero in income tax. Their gross margins are exceptionally high, at 91%, even for a tech company.
Reddit spends an average of 33.57% of revenue on R&D, compared with 26.57% for other tech companies, according to their most recent quarter. They also have a very low debt-to-equity ratio of 0.1 (Total Liabilities/Total Stockholders’ Equity = 265,713 / 2,610,663). They have a very high cash ratio at 3.99 (current cash + cash equivalents / current liabilities = 911,653/228,325, where a good cash ratio is generally considered at .5-1.
Valuation
My target price for Reddit is $791 for 2032 and $283 for 2026. I have selected 7 years as my first target horizon because I believe that going beyond 7 years is more difficult to predict. On the other hand, picking a target price for under 7 years risks being far off due to the inordinate influence of outside variables like the Google search algorithm or ChatGPT citations (or lack of citations) of Reddit versus something easier to predict, like the long-term consequences of strong management of Reddit and its value proposition to its users. In this more bear than bull modeling, I did not include the possibility of asymmetric returns from new LLM contracts, even though I believe Reddit could benefit substantially if it either sells the data for LLMs more or uses it more effectively for the advancement of its own LLM. What I have generated is for the base case, a bull target could be much higher and show asymmetric returns
Please see the tables below for the numbers, and my assumptions are included.
Risks
Perhaps the most significant risk Reddit may face is from its competitors in its territory: a decentralized digital platform for information sharing. Reddit lists numerous competitors, including Google, Meta, YouTube, Wikipedia, Snap, X, Pinterest, TikTok, Roblox, Discord, Twitch, Patreon, Tumblr, Substack, Squarespace, and large language models from Google, Meta, OpenAI, and Anthropic.
Recently, the company’s stock plummeted almost 10% in one day, partially because former Reddit cofounder Alexis Ohanian announced a competitor to Reddit, Digg, that planned to distinguish itself from Reddit by focusing on the elimination from the site of information generated by bots.
An additional risk is that the content licensing that Reddit has already profited from may become depleted or decline, and the hoped-for future returns do not materialize. Reddit was also banned for individuals under 16 in Australia as unsafe, and Reddit could face backlash in other countries for non-age-appropriate content.
Previously, the CEO Steve Huffman earned over $193 million in compensation in 2023 due to Reddit’s performance. His vesting schedule extends through 2028; after 2028, a new compensation package would need to be discussed, and ideally it would maintain incentives for him to remain and create value for shareholders. Regardless, he currently owns approximately $1.2 billion in stock and is thus strongly incentivized to deliver long-term value.
Yet another risk for the company is the perception by many that the site provides low-quality information. Reddit’s decentralized platform is a double-edged sword – while on the one hand, the abundance of entries on any given subject is a preferable alternative to relying on a single, possibly biased or otherwise unreliable source for information, on the other hand, the site has no veracity meter and is consequently plagued by inaccuracies. This hurts their “trust label.” The site is also known as a platform for individuals with low social skills. Reddit may be hindered from growing as it faces negative perceptions of its brand as unreliable or geared toward a less socially savvy audience.
Additional risks include the uncertain outcome of the company’s lawsuit against Anthropic for unauthorized usage of Reddit’s data. Although recently, Anthropic paid one of the largest copyright settlements ever- $1.5 billion to authors whose data Anthropic used to train its LLM “Claude.” Reddit is also sensitive to changes in the Google search algorithm, which can affect whether Reddit results are displayed. Finally, Reddit, as a text-focused platform, may not elicit dopamine spikes as effectively as more visually oriented information platforms such as Meta.
Catalysts
Reddit’s business could benefit from lollapalooza effects, where several psychological tendencies, as described by Charlie Munger in his famous lecture on the merits of a multidisciplinary approach, combine in a positive feedback loop.
Another possibly underrated factor is that Reddit could join the S&P500, as it is now eligible, having met the most stringent requirements of a market cap of at least $22.7B, having at least 50% of its outstanding shares available for public trading, and having profitability in its most recent quarter, and by the sum of its earnings over the four trailing consecutive quarters. If Reddit were to join the S&P500, Reddit’s stock price would increase from automatic share buying of its stock from large asset managers like Vanguard or BlackRock.
Reddit reports 4th quarter earnings on February 5th. The psychological effects could continue to compound, resulting in geometric rather than linear growth.
Reddit, as the broadcaster of the infamous subreddit r/wallstreetbets, could find itself in an unusual situation where it becomes a “meme stock” due to the visibility and Association Tendency of the site on a page that discusses wild You Only Live Once (“YOLO bets by retail investors.
Underestimated AI Play
Reddit earned more than $30 million in data licensing from companies using LLMs, including Google and OpenAI, in the last quarter alone. This amount could continue to grow, and Reddit could gain new clients, such as the other 3 main LLMs (Claude, Grok, Perplexity). Grok and ChatGPT already routinely cite Reddit, boosting its visibility. Moreover, this past year, Reddit rolled out its own LLM, which uses proprietary input data that it does not share with other LLMs. This AI feature may become an attraction in its own right.
Conclusion
Reddit’s stock could benefit from the Lollapalooza effect, as social proof, satiation of curiosity, reward incentives, association tendencies, and growing distrust in authority combine in a positive feedback loop to increase the user base andstock price. Reddit faces a key risk from its new competitor. Like all social media companies, it especially faces risks from “trendiness” reversing. Until they find a way to present information to users with greater trust, the site may also be undermined by perceptions of inaccuracy or bias. On balance, Reddit should be a strong buy over the next several years because underlying factors are working more for it than against it, and its financials imply that the stock is trading at a discount relative to where it will be in 7 years.
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