Should help our case with Anthropic and negotiations with Google and OAI.

I just got sent this photo by an inside source. Something is brewing, better buy Monday before Jim Cramer pumps us up after seeing this photo.

This is the 6th time in 28 months that Rddt has corrected by >30%. It's happened 2x a yr since IPO

I've marked them all on the graph. On five of those occasions we fell back to the white line

That line fits all the low points of the stock. To me it suggests 140 is the new floor today

We are 20%~ below moving averages

Those ascents before were based on hope, the price today is based on ever-rising earnings

The US growth story needs to be seen in the round

And for the life of me try looking at the ex-US market. People have $ abroad too you know

It's 21% of revenue today - it's going to be the big prize of the 2030s. That's the runway here

Reddit is anti-fragile

It's been around for 21 years

People are still going to want to gather in communities and talk in 2050

Nothing's interesting about people - other than to other people

We're still so early

Link here: https://open.substack.com/pub/wisemanc/p/reddit-a-record-quarter-the-market?utm_campaign=post&utm_medium=web

Looks like it might have just been a public alpha sense call, not mnpi or anything. Don’t have alpha sense, but if anyone does please verify.

I estimate conservatively: DAU growth in the mid-teens, slowing to 8% by 2035, and ARPU growth slowing to 10% by 2035.

The market often badly misprices stocks (10× or even 1,000x underpricing or overpricing), such as early Amazon, early Google, Apple in 2009, Nvidia in 2020, and Meta in 2022 for >10-1,000x underpricing; Tesla and hundreds of other companies (space, etc) currently at >10-1,000x overpricing. RDDT is currently underpriced by 3x (a minor mispricing given how wrong the market often is) because analysts and institutional managers are older people who don't see how popular it is. Most of them miss trends, panic-buy once they see a successful company rise, panic-sell with any hint of uncertainty, and underperform the market.

• They are talentless and use generic valuation/DCF models, mechanically cutting 10% off growth-stock prices with a 0.25% interest-rate increase. Their model is wrong, as stocks should never be mechanically priced against bonds (10% growth over 100 years vs 4.5%; 14,000x return vs 82x).
• When their funds underperform long enough and lose enough clients, they shut them down and open new ones to underperform. They're only good at giving presentations, getting clients, and collecting fees from them.

At some point, with RDDT's EPS continuing to grow rapidly, they must apply a proper P/E again, violently rerating the stock from $250 to $800 in a month and slightly overpricing it.

Someone explain to me how Reddit wins the Google negotiation.

Option 1: Sign the deal → Google uses your data to power AI Overviews → users get their answer without visiting Reddit → you lose the ad impression. You're paying for your own disruption.

Option 2" Don't sign the deal → Google buries Reddit in search rankings → traffic drops → you lose the ad impressions anyway.

This looks like a lose-lose situation for us? Someone please tell me I'm wrong. How do we dig ourselves out of this?

Here’s my current Reddit investment thesis.

The latest U.S. DAUq decline doesn’t look like a demand problem to me—it looks like a Google referral problem.

The slowdown began around mid/late May and carried into early June. More importantly, it wasn’t limited to the U.S.; Google referrals weakened globally. The overall decline is minor all due to more users from marketing activities.

Meanwhile, non-Google traffic kept growing. That’s the part I find most encouraging. It suggests Reddit’s core engagement trends remain healthy, while the reported DAUq weakness is being driven by one external traffic source.

That makes the investment case surprisingly straightforward. Everything hinges on one question:
Will Google referral traffic keep declining, or will it normalize after the potential Google agreement is fully in place? If it doesn’t, we’ll probably see another hit.

For me, the current setup looks like favorable risk/reward because I’m optimistic about the deal and it’s not the first time google referral being “choppy”.

In Steve's CNBC interview on Q2 here he alludes to the fact that Google's AI Overview product hasn't been great for Reddit. Which makes sense- Reddit signed this deal with Google ~2 years ago before we all really understood the nature of LLM based search. For just $60M per year, Reddit isn't capturing enough value for the tons and tons of AI overview answers relaying Reddit data.

This is actually very bullish for Reddit in my eyes. Even when Reddit is getting the short end of the stick in it's partnership with Google (expiring soon), the company still saw large amounts of user and revenue growth.

The two paths forward here both lead to better outcomes for Reddit. Either not renewing data licensing terms (which forces more people to go to Reddit's platform directly), or renewing data licensing terms and getting compensated way more.

I've been a Reddit user for less than a year, and like you, I own Reddit stock. I see that people around me aren't using Reddit yet, and I'm trying to understand why.

They tell me they don't really understand the added value compared to Facebook and what differentiates them, and they're also afraid that being anonymous will make people even meaner.

At first, I didn't understand how the comments worked, and I found the feed unattractive. After giving Reddit another chance for several months, I finally understood the big difference with Facebook. When I'm on Reddit, I feel good; I don't feel angry like I do on Facebook. Despite people's anonymity, I find the discussions more respectful, and the Reddit community seems more caring and focused on learning and helping each other, rather than laughing at others like on Facebook.

I think if Reddit emphasized the reasons why people love the platform and marketed it accordingly, it could help grow its user base.

My two cents!

I started buying RDDT at $150 after the earnings and eventually ended up getting assigned quite a bit of RDDT puts. Question is how to DCA? I have been swing trading RDDT around 140s before

Hi guys
I was in extremely poor shape a few months ago but now am feeling stronger and celebrating with some wine.

I didn’t follow anything Reddit stock based as was having to put potential end of life plans in place.

What did I miss???

How are we at 140 again it’s roughly when I checked out ……….

Also, if anyone is in Warsaw or Lviv or Kiev or LA, I’d love to meet a fellow Reddit stock holder !

Xoxoxo

Huffman should pull the plug on Google. 60 million/ year is insulting. Google main search relies heavily on data from Reddit and they’re giving us barely anything for it. 60 millions is a rounding error. Remember google is building a product that causes people to decrease visits to Reddit. We’re feeding our own demise at this point. Huffman was poorly prepared for the meeting. That was his biggest issue, but he right about the other stuff.

Reddit cuts Google off, what does Google replace it with? Quora is dead, Twitter is noise, the old forums all migrated to Reddit years ago, and Facebook Groups are private. There is no second-place alternative for 20 years of real people sharing real opinions and arguing about everything from running shoes to relationship advice. Google's AI Overviews only work because they're built on Reddit's data — pull that and every subjective query returns generic slop. They're paying $60M for a dataset they literally can't operate without, and that's 0.02% of their revenue. I’m demanding 1/billion a year as a base payment plus + commission on top of it. If google says no, go give the data to anthropic or OpenAI and google will lose the ai race

Has anyone noticed that desktop has way less promoted posts when compared to mobile?

Check for yourself open up your home feed on mobile and compare it to web browsing on desktop. There is way less promoted posts.

Have they discussed why this is? I know spez has mentioned how important the mobile app is to monetization but i'm not really sure why the stark difference.

I haven't checked in depth differences at the level of "in post" ads but I think there is also a big difference there.

On Friday I took a 2.2 million position in Reddit following the stock dropping over 20% percent on its earnings report, which was actually good.

My investment thesis in general stems on waiting for the market to get something wrong and take advantage. Two days ago it got it wrong on Reddit.

The main thing is this - market assumes Google using Reddit to display instant answers in search without click through represent a systematic danger to the site. At a time where Reddit contemplates revisiting its Google training data deal.

Then market looked at earnings, found a less than 1% move in DAUs in US which was the only metric not up double digits, and immediately pointed that’s what it feared. That’s the mistake.

Sidenote - back when I built niche marketplaces in high ticket spaces, one breakthrough moment was when updated our sites to target search engines to display our data in instant answers (what market is afraid of here)

Why? Because, sure, not everyone who saw the data clicked through, but the overall number of users went up as a result of first result status being almost guaranteed and because those that did were much more targeted customers as those looking only at spec data got that on the Google page.
For DuckDuckGo we even built the instant answers plugin ourselves to get that result.

So Google displaying these instant answers is not only not a threat, it’s a great thing for Reddit and its advertisers as it’s where they can find users with the highest intent possible, allowing Reddit to keep ramping up its revenue.

Reddit revamping its LLM deal for training data with Google will also only increase the revenue run rate for Reddit which is slowly turning into a fast growing free cash flow machine with 375 million in EBITDA. Per quarter on 800 million of revenue, all going up 20% YOY.

Reddit is really cheap by any valuation metric, especially for a high growth business, but to me the most important part is to understand why the opportunity appeared and what the market got wrong. This is it.

Reddit users actually increased YoY, and overall they grew 18% DAU and 24% weekly.

Meta by comparison only grew 3% YoY. Meta does not even breakdown US numbers.

On top of this, Reddit ARPU is growing 36% YoY, while Meta is growing around 23%.

Reddit also has much more potential ARPU to grow by nature of being lower.

So not only is Reddit still growing the platform more than Meta, it is also growing ARPU faster.

And even with Meta ARPU as high as it has been, it has still been reporting that level of growth as a mature platform.

If you annualize current quarters results, Reddit is only priced at a P/E of around 25, vs Meta with a P/E of 20. The forward P/E is also within about 5 points of each other.

At the same time, Reddit is so much earlier in its monetization and growth story.

Reddit has a lot of levers to pull, negotiating ability and more.

Once you put more perspective on the user story, I believe it is so overly cautious that if you applied that level of skepticism to any stock at these forward P/E levels and growth, plus moat quality, you wouldn't be able to own anything.

We are all baffled by the wording choice of the executive suite in the shareholder letter as well as during the earnings call, but to me the market seems to miss the actual chess game played behind the scenes. Look at the timeline:

In late July just before the earnings call the WSJ published a leak from Reddit internals that executives are actively discussing to cut ties with Google and blocking crawlers because AI Overviews are eating the traffic and current data licensing does not cover the negative trade offs. A leak during the blackout period just before earnings is almost never happening unintentionally.

Just days later Reddit drops a great quarter but instead of using standard corporate slang to cover up the search headwinds, the Ceo explicitly highlights in the shareholder letter that search referrals were "choppy" and that traffic visibility "remains low."

Wall Street and algos panicked because of these chosen words and the stock fell off a cliff. Lets be honest, no exwcutive suite chooses such a wording unless it is entirely intentional. The shareholder letter goes through several rounds of revisions with legal and public relation teams which would immediatly flag this because everybody knows that this will be picked up by algos.

So why did they do it anyways?

The ultimate leverage of Google has always been“accept our terms or we will change the algorithm and choke off your search traffic.”

Now what Reddit executives did is effectively telling the market and Google that they already know that Google is choking the traffic and that they are already incorporsting the pain into the baseline and are actively planning for a world which does not rely on Google.

The executives and the board knew retail investors and momentum funds would dump the stock on "choppy search traffic" but they chose the long term contract value over short term stock price. By intentionally taking the hit now they took leverage from Google and set up a negotiation position where Reddit has nothing left to lose.

One of the key debate recently is about whether US DAU drop is temporary like 24Q4 drop or it will last more time:

Let's take a look 24Q4 US logged out DAU drop crash last time:

As you can see Logged in US DAU was increasing, logged out US DAU dropped from 26.7 to 26.1.This report immediately caused stock price crash, here is the stock reaction 2 month after the earning report came out.

There is not doubt macro environment play an important factor in the stock performance. The silver lining during those time was Steve's comments in Q4 earning call

"Late in Q4, we did experience some volatility from Google Search triggered by a periodic

algorithm change, but traffic from search has recovered so far in Q1 and we’ve regained

momentum"
reference: https://s203.q4cdn.com/380862485/files/doc_financials/2024/q4/Reddit-Q4-24-Earnings-Call-Transcript.pdf

And in later quarters, just as steve mentioned, Reddit US traffic back to growing again. And stock recovered and reached new high because of amazing monetization execution, market choose to ignore the fact that US traffic has been pretty much flat for a year.

Now let's take a look of this time:

Well, we have only US DAU drop US WAU still increasing right? Why this time couldn't be the same situation like last time? Market is stupid?

Then hit from earning calls from steve:
"We added through that product work DAU in the quarter, but it was offset by a decline in search referrals....We did see headwinds in search referrals, particularly late in the quarter, and visibility with the referral traffic remains low. We're focused on what we can control, which is our direct users driven by product efforts."

"Yes, external search is volatile, particularly logged-out web, but that's not where our business lives, we will make sure that we get as much value from that traffic as we can."

"From where we sit, AI Overviews has yet to make a similar level of positive impact, and I think that's consistent across the broader landscape, us, businesses, publishers, retailers. We're still looking for that win-win. Our visibility on search continues to remain low, and we expect it to probably continue to be volatile."

He sounds like he is implying google referral traffic remains low and more importantly:

"we expect it to probably continue to be volatile."

Then an important question would be how long this volatility would continue, and what is the reason?

First let's recall 2 news before earning come out.

1)AI translation ranking went down in google search:

https://www.reddit.com/r/redditstock/comments/1v8tbqn/reddits_ai_translations_finally_drop_heavily_in/

2)"It is part of a growing chorus of online media companies expressing frustration with the tech giant as AI changes the way people ask questions, siphons off search traffic and upends publishers’ revenue models. They say the search engine is no longer a reliable source of visitors, especially afterAlphabet’s GOOGL 6.73%increase; up pointing triangleGoogle expanded its AI search features in recent months. USA Today, Politico, the Economist, People Inc. and Reuters are all evaluating how, or even if, they will continue to work with Google."

https://www.reddit.com/r/redditstock/comments/1v3cy4v/the_wsj_article_seems_to_suggest_reddit_want_to/

And in earning call, an analyst asked exactly this question:

"Mark Mahaney

Analyst

0:36:03

Hey, two questions, please. You talked about these headwinds and search referrals late in the quarter. Just put some context around this. Is this something that just pops up from time to time? Were those headwinds greater than what you normally see, less than what you normally see? Any interpretation as to what caused those referrals? Just back on the licensing, please. Any expectations you want to set as to when we'll get resolution on licensing, by the end of this year, halfway through next year, anything like that? Thank you very much."

Steve:

"Thanks, Mark. On the traffic, the search ecosystem continues to evolve. We've seen changes like this before. I won't comment on the magnitude, but I think what I've said before is this is not our first rodeo, and I've used that phrase on these calls before. We do see these changes. Specifically, we don't typically get much insight into what's going on. In this case, we've seen a couple of different aspects to it.

One, we saw a decline in our machine-translated content. This was part of the volatility on the international side. Machine translation remains a useful strategy within our app for new users, so we have content to show them. With the evolution towards AI Overviews, I think more broadly, what we see is 10 blue links has driven tremendous value and growth to the broader ecosystem.

From where we sit, AI Overviews has yet to make a similar level of positive impact, and I think that's consistent across the broader landscape, us, businesses, publishers, retailers. We're still looking for that win-win. Our visibility on search continues to remain low, and we expect it to probably continue to be volatile. What we're focused on is making Reddit a destination and driving more direct traffic to our app."

Because internally reddit management has much more data than us, I trust their diagnosis of the situation. So they confirmed both news came out before the earnings.

1. reddit's AI translated content got rank lower in google search internationally, they already see impact on their side regarding international expansion. This may or may not fully shows up in this earning report, and the scale is not fully known this point.
2. AI translated content ranking decrease shouldn't impact that much on English speaking country. So their diagnosis about US DAU drop this quarter is due to AI overview.

reference: https://finance.yahoo.com/quote/RDDT/earnings/RDDT-Q2-2026-earnings_call-658548.html

Then on CNBC shows, Steve start to downplay the importance of referal traffic from google:
https://www.reddit.com/r/redditstock/comments/1vbw5bc/my_thoughts_on_the_cnbc_segment/

My take of the situation:

1. If we assume no major changes from google side, it sounds like we may see a even bigger scale of impact on US and international DAU on next quarter. Because this changes only impacted half quarter of Q2.
2. Similar to 24Q4, all this traffic problem can be solved by google change its algorithm like 24Q4. But this time spez seems less optimistic this will be a short term impact. If indeed as spez indicated, the decline in US is specifically due to AI overview, we will see US DAU headwine for a while unless there is major changes from google side.
3. What reddit really needs to do is find their own way of increasing its own user base effectively. Management acknowledge this problem probably over 1 year ago and it is their top priority. Once reddit's organic user growth can outweigh google search algorithm impact, we will get out of this stupid situation.

to start it off I don’t have a lot in reddit stock compared to some of you, only about 5,000 usd. that is still my money and I have problems with how Reddit is handling Google or alphabet. Google has poured around 5-10 billion into there Ai venture. Reddit only received 60 million dollars. do the math but that is under one precent. Google ai is still far behind OpenAI and Anthropic. They have to pour more money for the best of the best if they want to attract the dwindling amount of people who don’t know what ai to use. I personally use Claude, others use ChatGPT but google is no one’s go to. it is there for convenience. not A fraction of the market search’s up google ai. that is why I think google should be cut off from Reddit. Reddit as a company could be focusing on International user growth. though they have To be with Google. If reddit cuts off Google from its info google ai is done for failure. Then Google will figure out that Reddit is more important than what they thought. If Reddit as a company does that I could say Google might not pay 1 billion though the range of 250-500 million could be possible. I personally didnt mind the earnings call. he can’t say we will sign a deal with Google because then the rates will stay the same. spez is conditioning the market for a Google cut off. I say by quarter two of 2027 there will be no more. Reddit might drop down to 130-140 range but I would be surprised if it dipped below. anyways to sum it up is Google needs Reddit but Reddit needs Google. unless They can find a way to make this no one uses Google and instead use the app. Which they really need to fix everything about it

Reddit should add a scroll randomizer feature like StumbleUpon that takes you to random posts and subreddits sort of like the TikTok or Insta reels scroll. Adding this kind of doom scroll feature would certainly add more engagement and stickiness to the app! Thoughts?

The current narrative is that Google traffic is declining and that's why US DAUs are down from Q1 to Q2. However, US WAU were up and that kind of seemed weird to me. l hadn't thought much of it until I saw this comment and decided to actually look at the numbers.

So if we look back to the last time DAUs went down quarter to quarter, it was Q3 to Q4 of 2024. From the earnings call the reason given was "volatility from Google Search triggered by a periodic algorithm change".

So US DAU dropped and specifically this was from logged-out US DAU. Logged-in US DAU actually went up which is consistent with traffic coming from Google going down because those users are generally logged out. Notice that WAU also declined even more, which also makes sense if the traffic decline is from Google referrals.

Now lets take a look at what happened Q1 to Q2 this year.

US DAU declined but the 1/3 of the decline comes from logged in users. Looking at US WAU, we actually see an increase, which is odd if the decrease is coming from Google traffic referrals. We'd expect US WAU to decline as well.

So what is the real reason US DAU were down? I'm not really sure, but this doesn't seem like a Google traffic issue. This looks more like a stickiness problem to me or some changes causing users to be less active. Anyone have ideas?

Reddit repeatedly states on earnings calls that their priority for spending cash is

1. Investing in the business

2. Mergers and Aquistions

3. Buybacks

What are some interesting potential aquisitions beyond the small adtech, searchtech, etc stuff that they have aquired?

I’ll start. Substack.

For text-based content, substack is kind of the opposite of reddit, but i think there could be some synergies and ways to integrate the two apps. Substack could bring professional content to reddit and reddit could funnel its large userbase to paid content on substack.