Mad Hedge Technology Letter
March 28, 2025
Fiat Lux
Featured Trade:
(AN UP AND COMING SOCIAL MEDIA PLATFORM)
(RDDT), (GOOGL)
Posts
Social media stock Reddit (RDDT) has fallen dramatically from February and is one of those companies readers need to mark down as one to buy at a discount.
Even though the stock has more than halved, this platform is one that has made major inroads into the cultural and social fabric of English language discussion.
It is true in the short-term, it is facing tough comparisons to the bigger giants like Facebook, Instagram, and Snap.
There is clear evidence that the boost to traffic and visibility from Google’s (GOOGL) changes is hitting a ceiling, with a risk that we are entering a period of diminishing returns.
Reddit's daily active user growth will slow to 19% in 2025.
Google’s expanded relationship could turn on a dime and that looks like the likely outcome here.
Google’s search algorithm is not adding as many Reddit subscribers as it used to.
Reddit is not a behemoth, but everybody in Silicon knows this company.
The mid-term problem for Reddit boils down to the lack of profitability.
When you consider that the weakness in Reddit has coincided with a brutal macro-induced selloff, then Reddit is starting to crawl back into an attractive zone for long-term buy-and-hold investors.
When this tariff chaos starts to calm down, I do believe Reddit stock will turn sharply higher.
At its February peak, Reddit’s stock had risen over 500% from the $34 initial public offering price last March. Some of the enthusiasm was due to a series of deals in which Reddit was paid to allow its content to be used for training artificial intelligence models. More recently, though, there have been questions about the long-term growth prospects for the artificial intelligence industry.
Remember that Reddit is in the early stages of executing on a robust, multi-year user and monetization growth opportunity.
There is also the potential to add many other non-English language markets.
Reddit’s shares are extremely volatile and have had 66 moves greater than 5% over the last year.
There is also the critical issue of investors not knowing the company well enough because Reddit’s brand is still way too small.
The diminutive stature of Reddit’s brand footprint has translated into less marketing interest.
Smaller companies are susceptible to the whims of Google Search and Amazon e-commerce.
These types of bigger companies can stifle growth by becoming too reliant on search results making Reddit.com harder to find.
Surely, investors wouldn’t believe it is realistic if the stock continued its rise peaking at $230 per share.
The comedown has been remarkable, but to be honest, many other tech stocks have been beaten up pretty good too lately.
Reddit needs to fall another $20 and then I would say that is a great entry point into an upstart social media stock.
In the meantime, the global trade fights continue to hog center stage.
Pessimism continues to grow in the US, but we still haven’t hit a recession.
Mad Hedge Technology Letter
March 22, 2024
Fiat Lux
Featured Trade:
(REDDIT HAS SOME JUICE)
(RDDT), (META)
Readers who missed out on stocks like social media platforms like Facebook (META) now have a chance to grab a pillar of social media in American society.
Reddit (RDDT) went public yesterday and jumped 48% by the end of the trading day cementing its place as a top player of social media stocks in Silicon Valley.
The valuation now is $8 billion and we are just getting started as tech IPOs reverse from its recent dormant activity.
The strong showing by Reddit, along with AI-focused semiconductor connectivity company Astera Labs whose shares have gained 78% since its IPO Tuesday, provides a promising backdrop for other IPO candidates such as Microsoft-backed data security startup Rubrik and health-care payments company Waystar Technologies.
Reddit’s most loyal users were able to buy 8% of the shares at the IPO price, an opportunity typically reserved for institutional investors, and saw a total return in the aggregate of about $29 million by day’s end.
Reddit’s more than two-year slog to listing reflects the ups and downs of the market, beginning with its initial confidential filing in 2021 when IPOs on US exchanges set an all-time record of $339 billion.
Reddit’s listing pushes the total raised by IPOs via US exchanges this year to about $8.8 billion. That’s an increase of around 152% at this point in 2023.
One benefit of Reddit’s slow route to the public market is that enthusiasm for the AI revolution has continued to mount.
The potential of AI was at the center of Reddit’s proposed value proposition to investors, as companies eye the record-setting rallies in stocks like chipmaker Nvidia Corp.
Pay for growth, and for Reddit, which accelerated growth in the past six months, it just makes a strong case that it should be at a premium multiple.
Reddit said it’s in the early stages of allowing third parties to license access to data on the platform, including to coach up artificial intelligence models.
The company said that in January it entered into data licensing arrangements with an aggregate contract value of $203 million and terms ranging from two to three years. It expects a minimum of $66.4 million of revenue from those agreements this year, according to the filings.
Reddit also has announced a deal with Google, allowing Google’s AI products to use Reddit data to improve their technology. Large language models often need vast troves of human-generated content to improve.
Founded in 2005, Reddit averaged 73.1 million daily active unique visitors in the fourth quarter, according to its filings. The company reported a net loss of $91 million on revenue of $804 million in 2023, compared with a net loss of about $159 million on revenue of $667 million a year earlier.
It’s clear to me that there is a solid road map to monetizing Reddit’s platform whether it is licensing in-house data for AI large language models.
Reddit is an extremely rich and diverse social platform in which contributors discuss many topics.
As long as the over 73 million subscribers maintain their engagement, it’s easy to see how the tech company maintains its growth trajectory.
I do believe that subscriber growth will continue and the low-hanging fruit is that 100 million subscriber numbers.
Over time, this platform is a gold mine for AI algorithms to integrate with and that shouldn’t be diminished.
I would invest long-term only on big dips.
