Buy the Post-Selloff Discount in Reddit - Same Fundamentals, Shorter Duration Risk

Hook & thesis

Reddit dropped sharply in the market-wide correction, but the company's underlying growth and monetization trajectory haven't suddenly unraveled. Q4 results showed 70% revenue growth to $726 million and an adjusted EPS beat, yet the stock trades well below its recent highs. That creates a trade opportunity: buy the selloff for a long-term rebound while keeping duration limited to when macro and ad cycles normalize.

In short: same fundamentals, cheaper duration. The market priced a higher rate and headline volatility into the stock. If you believe Reddit's ad and enterprise monetization continue to expand and the firm converts daily engagement to revenue, the risk/return is favorable from current levels.

What Reddit does and why the market should care

Reddit is a global community platform where people join focused communities to share content, discuss topics, and discover products. Advertisers and enterprise partners increasingly value Reddit's first-party conversational data and engaged daily audience. The company has an addressable market in display/social advertising and potential enterprise data/external partnerships (for example, official data partnerships that monetize platform activity).

Why that matters: two levers drive value for Reddit - user engagement (scale and demographic depth) and monetization per user. With 121 million daily active users referenced in recent partner commentary and strong ad revenue growth, the story is a classic top-line compounding play. That makes revenue growth and margin expansion the near-term fundamental drivers investors should watch.

What the numbers say

Recent reported and snapshot figures give us a clear base case. The company posted 70% revenue growth in the latest quarter to $726 million and adjusted EPS of $1.24, which beat consensus. The market is valuing the business at roughly $27.1 billion market cap, with an enterprise value close to $26.2 billion.

Valuation multiples are elevated on an absolute basis but cheaper than prior peaks: price-to-earnings sits around the low 50s (P/E ~51), price-to-sales and EV/sales are both high relative to older, slower-growth internet peers (P/S ~12.3, EV/Sales ~11.9), and FCF was $684 million on the most recent annual run. Return on assets and equity are healthy (ROA ~16%, ROE ~18%). Balance-sheet liquidity is reasonable with a high current ratio (~11.56) and minimal reported leverage in the snapshot.

Technicals are supportive of a mean-reversion trade: the 10-day SMA (~$142.75) sits near price, the 20- and 50-day SMAs are much higher reflecting the prior uptrend, RSI is ~33.6—approaching oversold—and MACD shows bullish momentum building (MACD histogram positive). Short interest data indicate a non-trivial short base (around 18M shares most recently with days to cover ~4.3), which increases the potential for a sharp squeeze if sentiment improves.

Valuation framing

At a $27.1 billion market cap and the most recent revenue run-rate implied by quarterly growth, the market is discounting a fair amount of execution risk into the price. P/E of ~51 and EV/EBITDA in the high 50s imply expectations of continued rapid growth but limited near-term margin expansion. The stock once traded much higher (52-week high $282.95), so today's price reflects two things: a broader de-risking in growth names and company-specific worries about user growth deceleration and metric reporting changes.

Viewed pragmatically, this isn't a value name by classic metrics. It's a growth-at-a-reasonable-price style trade relative to the last cycle: you are buying strong recent revenue momentum and improving enterprise monetization at a lower multiple than peak. If revenue growth stays elevated and margins tick up, the current multiples look easier to justify.

Catalysts (what will make this trade work)

• Continued ad recovery and higher monetization per logged-in (or aggregated) user driving sequential revenue beats.
• New enterprise partnerships and data deals that expand non-ad revenue and FCF profile.
• Macro: softer short-term inflation and market expectations of rate cuts could re-rate high-growth, long-duration names.
• Technical squeeze driven by declining short interest and improved volume dynamics after the selloff.

Trade plan (actionable)

Thesis: Buy the selloff on conviction that Reddit's Q4 momentum and monetization trajectory persist. Target a re-rating toward higher multiples as growth sustains and volatility recedes.

Trade rationale: enter at $143.50 to capture upside if the company posts repeated beats or macro risk appetite improves. The $120 stop limits downside if user metrics materially deteriorate or if macro pressure intensifies. The $220 target reflects a partial re-rating toward a still-discounted growth multiple compared with prior peaks, but not all the way back to $282 levels.

Duration note: I expect the trade to take up to 180 trading days to play out. The primary drivers - advertising cycles, partner deals, and macro rate expectations - typically take multiple quarters to manifest in valuation. If the stock rallies quickly on a catalyst, scale out and tighten stops.

Risks & counterarguments

Below are the primary risks to this trade and a counterargument to the buy thesis.

• User-growth slowdown - The company already flagged slowing U.S. user growth in recent commentary. If daily engagement stalls or declines, advertisers could retrench and revenue growth would materially compress.
• Ad market cyclicality - Digital ad budgets are sensitive to macro conditions and tariffs/retailer headwinds (as seen in peers). Another ad-spend pullback would hit quarterly revenue and could keep multiples depressed.
• Metric transparency and guidance risk - Recent changes in how Reddit reports logged-in vs logged-out users created investor uncertainty. Opaque metrics can delay re-rating and keep volatility high.
• High multiples - Even after the selloff, the stock trades at elevated P/E and EV/Sales. The company must keep delivering strong growth to justify the valuation; otherwise downside could be large.
• Short-squeeze reversal risk - Heavy short interest can produce sharp rallies but also steep selloffs if sentiment flips; this increases trade volatility and stop-hit probability.

Counterargument: The market is correctly pricing in a structural slowdown in user growth and a tougher ad market ahead. If ad demand shifts away from community-driven platforms to other ad formats or if Reddit cannot sustain engagement with monetizable users, today's price may still be too rich. In that scenario, holding through the cycle could produce further losses and the stop becomes critical.

What would change my mind

I would abandon the long bias if one of these occurs: a) the company reports a clear and sustained decline in active users and engagement for two consecutive quarters, b) revenue growth drops materially below high-single-digit quarter-over-quarter growth and guidance is cut, or c) the company signals structural weakness in ad demand that pushes a multi-quarter ad recession. Conversely, I would add to the position on signs of accelerating monetization (meaningful beats to both revenue and FCF) or if institutional investors disclose large accumulations that reduce floating supply and shorts cover meaningfully.

Conclusion

Reddit is a growth platform with intact revenue momentum and signs that enterprise monetization is expanding. The recent selloff reduced duration risk and created an actionable entry near $143.50. This is a long trade with a 180-trading-day horizon, a $120 stop to protect capital, and a $220 target that reflects a reasonable partial re-rating if growth persists. The trade balances upside from momentum and monetization against meaningful execution and macro risks. Keep stops tight, monitor ad-market signals, and be prepared to trim on sharp, catalyst-driven rallies.

Note: Watch upcoming revenue prints and any commentary from major advertisers: they will tell you whether this is a transient mark-down or the start of a longer re-rating.