Is RDDT a good stock to buy? We came across a bullish thesis on Reddit, Inc. on Buffetts Disciple’s Substack by Aled. In this article, we will summarize the bulls’ thesis on RDDT. Reddit, Inc.’s share was trading at $156.82 as of April 21st. RDDT’s trailing and forward P/E were 59.85 and 38.46 respectively according to Yahoo Finance.
Reddit ($RDDT) is positioned as a high-growth social media platform where trailing financial metrics significantly understate earnings power, as rapid margin expansion and accelerating revenue growth driven by AI-enhanced advertising and engagement dynamics are not fully captured in TTM GAAP figures. Despite posting ~70% YoY revenue growth and guiding to ~50% growth ahead, the stock trades at roughly 26x earnings, which appears compressed relative to its forward trajectory when earnings are annualized from recent quarters.
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Net margins have expanded from ~16% to ~35% and are expected to trend toward 40–45%+ over time, supported by operating leverage, disciplined headcount growth, and AI-driven efficiencies across content ranking and ad targeting. The business increasingly mirrors Meta’s long-term model, where improved algorithms amplify both user engagement and monetization, creating a self-reinforcing advertising flywheel. While logged-in DAU growth has slowed to ~10%, international expansion and improved AI-driven translation are offsetting maturity in the U.S. user base.
Additional upside comes from a high-margin data licensing business and a $2B cash position supporting aggressive buybacks, which can add incremental EPS growth through share reduction. The main concern remains whether DAU deceleration caps monetization, but continued improvements in ad ROI and time spent per user mitigate this risk.
With minimal leverage, strong gross margins above 90%, and improving operating efficiency, Reddit’s earnings power is structurally higher than perceived. If margins normalize near 45% and growth sustains near 40–50%, the stock could re-rate implying 50% upside from levels as the market transitions from trailing skepticism to forward-looking valuation.
Previously, we covered a bullish thesis on Reddit, Inc. (RDDT) by mylizard in December 2024, which highlighted monetization gaps, ad underutilization, and bot/content quality issues. RDDT’s stock price has depreciated by approximately 6.19% since our coverage. Aled shares a similar view but emphasizes AI-driven margin expansion, annualized earnings power, and buybacks, focusing more on earnings re-rating than platform-level engagement improvements.
Reddit, Inc. is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 82 hedge fund portfolios held RDDT at the end of the fourth quarter which was 80 in the previous quarter. While we acknowledge the risk and potential of RDDT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than RDDT and that has 10,000% upside potential, check out our report about this cheapest AI stock.
Disclosure: None.
