Reddit, Inc. (RDDT) stock intrinsic value fair value estimate & owner earnings analysis

Reddit runs a network of topic-based communities and earns money mainly by selling advertising on its app and website ($2,062M of 2025 revenue), plus $140M of other revenue that comes largely from licensing its content to AI and technology companies. Revenue grew 69% in 2025 to $2,203M, daily active users averaged 121.4 million in the fourth quarter (up 19% from a year earlier), and the company turned from losses in 2023 and 2024 to a profit of $530M. How we measured earnings. We start from operating cash flow, remove swings in receivables, payables and similar working-capital items, and then subtract stock-based pay as a real cost. Capital spending is tiny (about $7M a year), so it barely matters. On that basis Reddit earned about $525M in 2025, or $2.60 per diluted share. Earlier years were losses on the same basis: about -$2.54 per share in 2022, -$1.72 in 2023 and -$3.54 in 2024. The 2024 loss includes an unusually large $802M of stock-based pay. Because the business only became clearly profitable in 2025, we treat 2025 as the only year that describes the business as it exists now. Recent quarters point the same way: in the first half of 2026, operating cash flow of $574M less stock-based pay of $169M and capital spending of $2M left roughly $455M after our working-capital adjustment (about $2.25 per share in six months), well above the 2025 pace. That is two quarters, so we do not raise the starting level in the base case; it does inform the bull case. Growth. Owner earnings cannot be meaningfully compared with 2024 because 2024 was a loss, so year 1 of our base case assumes zero growth. Reddit's rapid revenue growth depends on more users, more advertisers and higher prices, none of which are locked in, so no growth is credited in any case. A tax point matters here. Reddit paid almost no income tax in 2025 because it holds about $1.7 billion of federal tax losses from earlier years, which can offset up to 80% of taxable income in a year. That shield is finite. We assume a tax rate of about 5% for the first four years in the base and bear cases (two years in the bull case, where profit is higher), then about 24% of earnings. Base case (about $15.8 per share). Advertising-driven earnings stay flat at roughly the 2025 level for ten years, then fade to zero over the following ten years, because nothing in the filings lets us name what sustains them beyond that. The content licensing revenue is counted only as far as it is contracted: $143.7M of contracted revenue remains, $118.9M in 2026 and $24.8M in 2027. Nothing is contracted after 2027, and the company says substantially all of the licensing contract value comes from two partners and may not be renewed or may be renewed on worse terms. So we assume the licensing income stops after 2027 and treat the lost revenue as lost earnings, which is our simplifying assumption. Bear case (about $9.3 per share). Same licensing lapse, plus advertising-driven earnings 30% lower than in 2025 from year 2. The risk is disclosed: Reddit says it depends in part on Google and other search engines to bring visitors, and in its 2025 10-K the company disclosed a securities class action filed against it in which the plaintiffs allege false or misleading statements about the effect of Google Search and its AI Overviews feature on the business; these are allegations. In this case earnings hold for five years and then fade over ten. The 30% figure is our judgement of a plausible downside, not a figure from the filings. Bull case (about $34.4 per share). Earnings hold at the first-half 2026 pace of about $4.50 per share a year, with licensing continuing, for ten years, then fade to zero over ten more, with the tax shield used up within two years. It credits only a level already reached, not further growth. What would prove this wrong: renewal of the AI licensing deals on similar terms would raise the base case; a sustained fall in search-driven visitors would lower it. Our values are deliberately conservative because Reddit has only one full profitable year and its advertising earnings are not contracted. The company held $954M in cash and equivalents at year-end 2025, plus marketable securities; interest earned on these is already part of operating cash flow, so we do not add the balances separately. We used about 202 million diluted shares. The margin-of-safety price is set close to the bear case value because the record of profits is short.