Should I Buy Reddit (RDDT)? Finance YouTuber Analysis

The YouTuber sees Reddit as a misunderstood company with significant growth potential, especially from licensing deals with AI companies and optimizing average revenue per user. He believes current projections are conservative and expects upside surprises. He would buy more shares if the stock pulls back to around $160-$170, though he would also consider buying at $200.

“If we do have a broader market draw down, I wouldn't be surprised to see it back around 160 170 or so.”

The YouTuber added to his Reddit position, believing the company can be worth hundreds of billions in the future. He highlights improvements in user retention through personalized feeds, strong revenue growth driven by ad load and premium monetization, and the value of its human-to-human dialogue data for AI model training, leading to contract renewals with OpenAI and Alphabet.

“I did add 15 shares or a 33.3% increase to my Reddit position at $162.59.”

The YouTuber initiated a small position in Reddit, citing its undervaluation, fast growth, profitability, and positive free cash flow. He believes the AI licensing deals are not yet priced into the stock and that advertising revenue per user will increase as the platform improves. Recent positive analyst notes from Piper Sandler and Cleveland Research, highlighting improved ad spend and customer activity, further support his bullish stance.

“In my opinion, it's undervalued, a bit misunderstood because yes, the model is quite similar to what we've seen with a meta for example. But here you do also have one monetization stage is still very early compared to meta. Two, we have the AI licensing deals that of course still early on. I do think that is not priced into the stock right now.”

The YouTuber is considering opening a position in Reddit if there's a broader market selloff. He views Reddit as undervalued, a pure beneficiary of AI, the sixth most visited website globally, growing quickly with increasing free cash flow, and expects significant AI licensing deals. He believes it could become a $100 billion company.

“And so if we do have a broader selloff over the next couple of days, maybe next couple of weeks, then yes, Reddit is definitely one of those names where I could look at it and say, you know what, maybe it is time to open a position in that company.”

The YouTuber sees Reddit as a rapidly growing and increasingly profitable company, currently undervalued at $33.3 billion. He highlights its strategic positioning as a foundational resource for AI models, which he believes the market is not fully pricing in, and suggests it could become a $100 billion company.

“I don't think the market is fully pricing that in. And of course, again, this is just a company worth $33.3 billion. Could this potentially be a hundred billion company in the future? I think so.”

The YouTuber is considering buying Reddit, noting its rapid growth in revenue and free cash flow, despite recent stock performance. They highlight its potential for AI licensing deals due to its unique human-generated data. While acknowledging it's not a deep value play, they see it as the 'cheapest of the bunch' among their potential buys.

“Moving on to the next one, and that's Reddit. Reddit year to date is down 40.2%, but over the past 12 months, it's still up 38.3%.”

The analyst calculates a fair price of $87 for Reddit, significantly below its current trading price of $115. While acknowledging its growth potential and unique platform, he highlights risks such as share-based compensation leading to dilution and heavy dependence on Google for traffic. He would personally consider buying only if the price dropped to $60-$70.

“The current price of $115 gives a value ratio of 32 and a fair price of $87. Personally, I would buy around $60 $70, but unless the recession hits, we probably won't see that again.”

The YouTuber suggests buying Reddit if it pulls back to support levels between $181 and $191. He notes that despite a post-earnings dip, the overall performance was decent, and a bounce from this support could lead to a 4-5% gain back to $205.

“Reddit this one guys the Ticker on this one is rddt it fell after earnings okay but everything overall was pretty decent and so if this could fall to support around 190 191 to 181 if and and if this could bounce so it might go down a little bit we'll see how tomorrow reacts but if it can find a base this has a lot of room back to the upside retracing this $8 fall or this 4% move we got at least a 4 5% play in this back to 205 it okay”

The analyst advises avoiding Reddit's IPO due to several red flags, including significant insider selling, a lack of clear control among founders, and the company's continued unprofitability. While AI data licensing offers a potential revenue stream, it also poses a competitive threat and is insufficient to cover current losses, making the long-term financial model unclear.

“given the current red flags, not an IPO that I'm going to invest in right now”