Reddit The Next Meta Or Snapchat

TITLE: Reddit: The Next Meta or Snapchat? (Stock Explained) CHANNEL: Drew Cohen DATE: 2026-04-11 ---TRANSCRIPT--- Social media is one of the most beautiful business models. The users create the content, then they get other users to sign up. The site owner only has to sell digital space, which is basically free for them to sell. There’s no cost of goods sold, and they don’t have to worry about managing inventory. On top of that, the site can grow indefinitely without any incremental capex. This is social media at its best. And Meta’s Instagram and Facebook are poster childs. The company’s combined revenues now exceed $200 billion. They have core margins over 50% and are still growing 20% year-over-year. However, this has not been the reality for most social media players. While some of them struggle with engagement, the real pain point has been monetization. You could look at Twitter or X, Pinterest, Snapchat. All of them have struggled to monetize even half as well as Meta does currently. So now the question is, is Reddit going to be the one to crack the code? After years of being a second rate advertising platform, they have recently gone through a transformation from 2020. They grew revenues from a poultry $220 million 10x in the matter of just five years to $2.2 billion. And they are now growing 70% year-over-year. They currently have 470 million users visit their site every week. And a lot of users go there to research, which should theoretically be a good opportunity to show them advertising. And so, could Reddit be the next popular venue for advertisers and perhaps a good investment for investors who are coming in at this turning point? Or is Reddit just going to be the next social media platform to dash investors hopes? Well, we are going to cover all of that in this video, starting with the business section. Then we’re going to move on to an ad industry overview to really understand the advertising industry, the adtech, the different things at play, the different sort of challenges that Reddit will be facing. Then we’re going to touch on some other growth opportunities briefly before moving on to Reddit’s obstacles, everything it needs to overcome in order to become a better advertiser to try to catch parity with Meta or if it’s not parity to just catch up a little bit to where Meta is today. And then finally, we’re going to conclude with the valuation. Now, if you’re new to this channel, my name is Drew Cohen and I try to teach all things money on this channel. I am a registered investment adviser. I also manage money for individual investors and before I worked at Goldman Sachs in investment research and later at Capital Group on the buy side where I actually covered a lot of the social media stocks that we’re going to be talking about in this video. Now, Reddit wasn’t public at the time that I worked there, but I did cover all the other stocks that we mentioned, so I am very familiar with them, as well as how investors think about these businesses. And so, just before we get into it, if you’re enjoying these videos, go ahead and hit like and subscribe. If at any point in this video you are not enjoying yourself, you could go ahead and take your like back or unsubscribe. It is not binding. But let us get into it. So, an overview of the business financials, you are looking at $2.2 billion total revenues for Reddit, growing 70% year-over-year. Now, they have two segments, advertising and other revenues. The other revenue segment is only about $140 million, growing 22% year-over-year. And so, the advertising segment, that’s going to be the big story here with Reddit. That’s going to be $2.05 billion, growing 74% year-over-year. Now, just real quick touching on that other revenue segment that has mostly to do with these data partnerships they have. Maybe you heard about this in the news over the past couple years that OpenAI, Google, they’re scraping Reddit’s data and using it basically to train their models. So, Reddit basically struck deals with them that said if you’re going to use any of our data, you have to pay us. And so, they have about a $60 million $70 million deal with each of them. And so, that’s a big portion of the revenues here. They pay them. That gives them access to all of sort of the data that is on Reddit. Also within here, which is much smaller, is something called Reddit Premium. That’s going to be a $5.99 month subscription to make Reddit basically ad-free. Then you also get gold, which is what allows you to buy badges. And you could also separately buy gold for like $1.99 is the cheapest amount. And that is those badges you see on Reddit. We’ll talk a little bit more about the Reddit platform in a moment, but if you are familiar with it, sometimes when you post a comment that’s popular, you’ll see there’s a bunch of badges there. People actually buy those and then award those for free. So that’s a very tiny portion of their revenues as well. So this is mostly going to be an advertising story and so that’s where most of our focus is going to be. Now gross margins for Reddit are going to be 70%. And their operating margins are going to be 20%. And so we could compare this to Snapchat. Currently they have 55% gross margins and negative operating margins. Pinterest, they have good gross margins at around 80%. But their operating margins are only about 8%. So despite Reddit being subscale relative to Snapchat or Pinterest, Snapchat has about $6 billion in revenue. Pinterest is in the low $4 billion range again versus Reddit’s $2.2 billion in revenue. So despite the lower revenue amount, their margin structure is actually better currently. And so that portends well for the future for them. It suggests as they continue to grow revenues, they’re actually going to be able to translate that into operating profit and probably also see a good amount of operating leverage as well, which has really been a problem, especially with Snapchat, even Pinterest to a degree too as well. They’ve been growing, but they haven’t really been able to bring much of that down to the bottom line. And so Reddit being smaller in scale and already showing better margins, that does signal that they’ll be able to continue to do so as they grow. Now, it’s worth pointing out though, because I did look this up. When Facebook was Reddit’s size, their operating margins were 50%. And so, even though 20 is good, Facebook was a different animal at the time. And maybe it also suggests that there still is a lot of fat that they could cut. They could be a lot more profitable if they wanted to be. So, both of those things could be true there. Now, the Reddit platform itself has about 470 million weekly users and 121 million daily active users. And so, that’s users who every day show up on the platform. That’s what a DAU is, daily active user. Now, their business model is really simple. If we think about what drives revenue, there’s going to be four aspects to this. It’s going to be users is the first one. So, number of users multiplied by time spent. So, how much time an individual user spends on the platform multiplied by ad load. So, that’s going to be how many ads are shown. We could think about it per minute you’re on the platform. So, one user on the platform for one minute is maybe shown four ads. That’s an opportunity to show them four ads. If we double the time spent on the platform to two minutes, now we’re showing them eight ads, right? So that’s how you could build up what is called ad impressions, which is basically every time an ad is shown, that’s an impression. And so that’s what an ad impression is. And then the last aspect of this formula, the most important part because it’s also kind of the hardest, that’s going to be ad price. So whatever the ad price is. So if you are shown these eight impressions, how much are you charging for these eight ads? Now that is going to be the full revenue model. So we can see users, that’s important. Of course, we want users on our platform. Time spent, that’s going to have to do with engagement, making sure we have engaging experiences on the platform. Then ad load, it’s kind of in control of the platform. They don’t want to overdo it. Generally speaking, it’s kind of hard to overdo it. At least that’s been kind of Meta’s experience, especially if the ads are very native and they kind of blend in with a lot of the content. Now, Reddit’s platform is different though because it is more text-centric. It’s a little harder to hide these ads in there because they do have these big photos, sometimes their videos. So it’s a little harder to stuff as many ads in there as maybe it would be for Instagram. However, part of that has to do too with how well the ads are kind of native to the platform. So, if the advertisers are very creative and they’re making these ads look like Reddit posts, basically, you’re able to stuff more of them in the feed without complaints because maybe users are actually enjoying the ads. And so, generally speaking, ad load is a lever that’s in their control, but they can’t go crazy on it, but they can continue to increase it. Also just the total amount of ad impressions which again is going to be those three things multiplied that is going to also increase as just time spent is increasing and as users are increasing right because more users on the platform more ads are going to be shown to different people they spend more time on the platform more ads are going to be shown to them in that session. Now, that last aspect we’re talking about ad pricing, I’m actually going to save talking about more of that until we get into the ad industry section because it’s not really in their control what they charge. So, it’s going to kind of be the result of an auction. Yes, in some cases, you can have a salesforce go out to an individual brand, strike a partnership for X dollars of advertising, and we’ll show this many impressions. And that is a way that a lot of these social media sites that are not really up to par will do business. They’ll strike these individual sort of deals with brands to sell them impressions. But what all of these platforms have really moved to is digital advertising and self-serve advertising where it’s all programmatic which means kind of automatic basically because you don’t want to have to have a salesperson individually go out to every brand and convince them to advertise on your site. No, you want it to all be automatic. You don’t want a salesperson involved in that. So we’ll talk more about that in the ad industry segment. There’s a few other particulars of Reddit that we should be aware of. So the majority of users on the site are actually logged out. So about 70 million of their daily active users are logged out versus about 50 million being logged in, which has ramifications for what data you can collect, how well you could really personalize the content. It’s much harder to personalize content if you don’t know who the person is. And so there’s all sorts of tricks you could do. You could drop cookies in there to try to collect data on them even though they’re logged out, which they do. You could have different advertiser websites have their cookies as well. They talk to the Reddit ones and they’re able to kind of connect that. And that’s one of the ways that you get shown these ads that even though you’re logged out, they seem pretty good. So there’s ways around that, but generally speaking, it’s still worse. You’re just collecting less data when you’re logged out. It’s also a less engaged user. If you’re not even bothering creating a username, a login, you’re not going to be that connected to the platform. And now the question of why there’s so much logged out activity, it ultimately goes back to Google search. So, a lot of times when people search for anything on the web, some of the best answers you’re going to get come from Reddit. So, they’ll click into that Reddit page, they’ll read the page, they’ll leave. That’s a logged out user. Now, what’s happening too is Google’s summarizing that and it’s just showing it up in the AI overview and you’re not even going into Reddit. And so, that’s a little bit of a headwind to Reddit. But those are also not the most valuable users to begin with. And it also still goes to show though that Reddit’s repository of reviews, information, real human text is kind of the gold standard on the internet still. There’s no single place that has as many aggregated opinions on disparate industries categories as Reddit does. And that’s probably going to only become more important in the future as more and more content becomes AI generated. Reddit’s actually in a really good place to keep a lot of the content on their platform human generated and not get deluged with AI text. And so part of that goes to the way the site actually works and how it was built. And so the quick 101 of Reddit is that you go to Reddit, there’s a lot of different subreddits. Each of these subreddits is basically an interest. They’ll have a subreddit for Ferrari lovers, another one for watch lovers, another one for how to remodel your kitchen, how to redo your flooring, whatever it is. A lot of very niche subreddits as well. They have over 100,000 of them. And then the subreddits themselves have their own rules and moderators. So the moderators are actually human volunteers that will implement the rules of the subreddit. So every subreddit has different rules. The moderators will keep every post on topic and they’ll delete stuff or they’ll boot people who do not follow the rules. And so that touch of having the human moderation, it’s going to be pretty helpful in an AI world. They also are kind of used to having bots too on the platform where bots would automatically do certain functions like block people for profanity. The other thing worth emphasizing is Reddit. Almost everyone on Reddit is anonymous by nature. So you have no idea who anyone is. When you create an account, it gives you a pseudonym. There’s no real names on Reddit. The one kind of exception could be if you’re a brand or public figure doing an AMA (ask me anything). But outside of that, everyone basically on the platform is anonymous. So part of that means that people are more honest with their opinions. You get a lot of content that you wouldn’t get on a Facebook where you do have everything you say tied to your real name. It also though means you get a lot of content and a lot of people saying things that are not brand friendly. And so there’s a content moderation issue with that as well. Reddit does welcome not suitable for work content. They just label it as such. But of course, none of that is really good for an advertiser’s perspective. The way it works since it’s anonymous and a lot of people don’t even have accounts logged in, there’s no social graph. There’s no friends and all that. Instead, what you follow are these subreddits, which are these different interest groups. So there is some informational value for advertisers in that you are signaling what subreddits you’re interested in. But it’s not as powerful as the social graph or everything else Meta does. The last thing kind of worth emphasizing on the Reddit platform is that it is a US-centric social media site. 40% of users are in the US, 90% of posts are in English, and 80% of revenues are from the US. They’re making some efforts to appeal to more people internationally. Part of that has to do with AI translation of text posts. The other thing to keep in mind though is that the United States just generally monetizes much better than other countries. Their ARPU, average revenue per user is going to be about $35 in the US versus about $8 to $9 globally. So the US is a much more lucrative market. And if you’re wondering how this stacks up to other peers, Snapchat right now is around $40. Pinterest is at about $32. And Meta, they are at a whopping $250+ average revenue per user in the US. So, a lot of room to run if they could get it to work. But the other reading of this is that kind of the easy work is already done. They’re already monetizing as well as Snapchat or Pinterest in the US. And so for them to get to that next leg and catch up to Meta, there’s a lot more work to be done. Now let’s get into the ad industry. There are two kinds of advertising. On the one hand, you have brand advertising, which we can also call top of funnel. On the other hand, we have direct response advertising, which we can also call bottom of funnel. Most digital advertising platforms want to get to direct response advertising. That is the gold standard. Brand advertising is like Nike “Just Do It.” They’re not advertising a specific shoe. They’re just advertising the brand itself. It’s about staying top of mind and building association. It’s very hard to track. The quip in the ad industry is “I know half of my advertising works. I just don’t know which half.” Direct response advertising is more bottom of funnel. It tries to elicit a specific action right in the moment with a call to action. Instagram is very good at them. The reason why direct response ads are higher quality is because when done well, you’re able to directly show the advertiser a return on ad spend. You gave me $100, I gave you three sales worth $400. That’s a four times return on ad spend. This is why direct response is so powerful. If you have direct response advertising in your business, you’re not likely to ever turn it off. They’re known as always-on advertisers. This is where Reddit wants to go. It’s also where Snapchat, Pinterest, Twitter all wanted to go. Reddit right now their top 10 advertisers are 21% of revenue, which is very concentrated. Meta’s top 100 advertisers were less than 20% back in 2019, probably less than 5% now. Ad pricing is set through auction. All advertisers bid on individual impressions and the ad price is the winning bid. To drive ad pricing higher you need more advertisers bidding against each other, better targeting, and better measurement/attribution. Reddit right now is in the exploratory budget phase. Advertisers are testing it out and happy with returns, but not ready to put big money behind it. Reddit is using AI tools like Reddit Max to improve targeting, showing a 17% decrease in cost per action. They have the Reddit pixel and conversion API for attribution. Advertisers grew 75% year-over-year. New ad units like dynamic product ads are performing well. But there are significant obstacles: over half of users are logged out (less data, less engaged), users are anonymous (no social graph), it’s text-centric (harder to blend ads), users come with research intent (less receptive to buying), and the platform is culturally anti-commercial (ads get attacked in comments). For the valuation at $145 stock price, that’s a $27 billion market cap on $2.2 billion revenue and $350 million in NOPAT. That’s a 76x trailing PE. What’s priced in: roughly 30% revenue growth and 50% operating income growth per year for 3 years gets you to a market multiple. If Reddit matches Snapchat’s $6 billion revenue with 40% operating margins in 5 years, you get 12-17% annualized returns. But Snapchat and Pinterest both had sharp growth decelerations after initial high-growth years (Snapchat went from 65% to 11%, Pinterest from 52% to 9%). Reddit has better financials than those peers despite lower revenue, which provides some downside protection. But a lot of this is already priced in.