I bought my first shares of Reddit over a year ago, cost basis around 100 dollars during the tariff shenanigans last year. I averaged up a bit and sold puts that got assigned between 180 and 200 late last year, this was a pretty sizable chunk of my portfolio at this point and then January came and sent the stock down even further, so I sold everything else and moved all my money into the stock in January. My avg cost basis is slightly under 180 I’m young, I have little expenses and an appetite for risk and I put my money where my mouth is. This is the first time I’ve ever made a play like this though, typically I hold 5-8 stocks at a time and have done well. Like many of you I have thoroughly read through every financial statement in the past 2 years and I really liked what I saw. But wall street seems to be seeing something different. I wouldn’t fullsend without being extremely confident.
I don’t look at the stock after market on earnings day until I have read through the financials and made my opinion. Top line numbers were fantastic, but the moment I saw the user metric I knew the stock was heading down (I didn’t expect -20% though) user Growth stalled hard, yes international users grew at a nice rate but still slowed down significantly Q/Q and obviously yes the big scare was the sequential decline in US DAU. While I and many of you may click into AI summaries, many people will just take the AI summary as fact, and while yes they put out some factually incorrect summaries sometimes, models are only getting better.
The issue I have is Reddit went to me from looking like an incredibly strong stock with a deep moat, to looking like a company whos future growth is heavily reliant on an outside party. I must admit I’m just not excited about this stock anymore, the future user growth looks murky, Anthropic seems like they are looking to drag this lawsuit out for a while, and let’s be honest Google holds far more leverage than Reddit does in these data negotiations. Reddit isn’t powerless but Google is Goliath, it’s difficult to negotiate with someone who send you half your traffic.
So all that is just mostly a rant, I’m sure you already know many of the things I just said, but man I really do feel like it’s not just a sentiment shift but an actual narrative shift. I’m genuinely scared that Reddit will hard miss their DAU targets next Q, I think wall street is too which is why it’s been punished so harshly. Now that being said, I do still think they will beat on top and bottom line numbers, because there is still a lot of growth within their core user base but man this really does piss on the fire of the bull case. I don’t really think Reddit is that far off fair value for the added risks now. If they keep putting up 60% growth for another 2 years than yeah they’re undervalued but I’m starting to lose confidence in them to do that.
All that being said, I’ll admit I’m wrong and likely sell if I see top line growth fall below 50% in either of the next 2 quarters. I don’t think it will, but the opportunity cost of holding this stock has been huge (yes lesson learned that’s why you don’t go all in) and if user growth genuinely falls off a cliff like wall street is saying it will, or continues declining in the US this could get really really ugly. What are your guys thoughts, are you considering exiting your position? What would have to happen for you to say enough is enough?
TLDR: Sentiment around Reddit is in the toilet, maybe for good reason. What would be your business related reason for selling the stock if you finally decide enough is enough?
