Greg Milin

$RDDT THOUGHTS I have been reading the takes on here with interest. Reddit has been on my watchlist since IPO. As a long time user, I can see the value of the platform. I can also see why management want to stop the AI grifters from scraping their data for LLMs. Any time I have a query, I often type in Reddit results on Google search. The logged in users only strategy is a risk for sure, but it could also age very well. As shareholders, you should want them to take bold steps to protect their assets. Reddit’s major asset is its data. A vast collection of authentic human content and discussion. In the age of AI slop, the data Reddit have access to should become increasingly valuable over time. Now there are things I don’t like about the platform. There is an obvious liberal bias which can ruin a lot of the communities via downvote bombing etc to shut down health debate. But objectively, it is a very valuable platform with some excellent communities which generate very useful discussions. If $RDDT had dropped to $100 prior to earnings I probably would have pulled the trigger in all honesty but this latest quarter has caused me to pause on that. It is currently unclear whether the reduction in daily active users is short term pain for long term gain. Or whether there is something more concerning going on in relation to how Reddit generates traffic to the platform. That uncertainty is likely to be a drag on the stock until clarity is gained and faith is restored. Reddit is cheap on the surface, with very impressive financials. Solid balance sheet. $3B cash. $1B buyback program. Increasing FCF and impressive growth metrics. Rafts of potential. —————————————————— THINGS I DON’T LIKE • SBC is 15% of revenue. It’s come down substantially since IPO but it’s still too high. Buybacks are basically offsetting SBC dilution currently. • There has been no insider buying. Management have generous RSU incentives, but collectively they only own around 1.5% of shares. That suggests a lack of conviction to me. • Reliance on Google is a potential problem for future sustainability of growth. It’s an issue they need to prove is not structural. • “We’ll likely be trading reach for engagement” was a very foolish term to use by the CEO imo. That is not what the market or shareholders want to hear. That is like saying “we will milk our existing user base and forget about growth”. Yellow flag. ——————————————————- A POTENTIAL VALUE PLAY INBOUND Reddit could soon be trading at a very attractive price relative to its growth and financial profile. I am not writing it off, far from it. But it does now have a lot to prove. I suspect they have a plan and contingencies for if this new strategy does not work. But it could still pay off in a big way. Based on the uncertainty there is an argument to say it is currently in a fair value range. But if it keeps dropping, that may change at some point. I will be watching closely. —————————————————— WHAT I WANT TO SEE I want to see buybacks ramping up now. This is probably their first test on capital allocation. They have the flexibility to extend that buyback program substantially and start to deploy growing FCF as well. Management need to prove they are shareholder friendly instead of sitting back and enjoying their generous SBC. A clear plan and roadmap in relation to DAUs. We’ve had poor guidance and speculation on the downward trajectory but not much in the way of mitigation. —————————————————— CONCLUSION I am on the sidelines for now but will be watching closely. I do think this is an overreaction. But there are concerns. There is still a lot to like here. That being said, I understand why shareholders are pissed right now. You have my sympathy. Not financial advice. No position.