This year's big stocks are mostly related to AI. In addition to the well-known shovel stock Nvidia, the application side is also flourishing, such as Palantir and Applovin. However, among them, there is an "old guy" with an ordinary business model, established in the PC era, that has also indirectly benefited from the AI boom, achieving a threefold increase in half a year—"Old School Tieba" $Reddit(RDDT.US), which has risen from a market cap of 10 billion at its IPO to 30 billion currently.

So the question arises, why has a "mediocre" Tieba platform begun to regain attention? After 20 years of establishment, it only timidly went public; what awkwardness lies behind this? The key question is, why did institutions almost all misjudge Reddit, with no analysts expressing strong bullish views when Reddit went public in May, and what is the real reason for the expectation gap? Additionally, how much imagination space does Reddit still have?

Dolphin Jun will answer all the above questions in this article. There is a lot of content, but also many insights, so if you're interested, you can read it slowly.

1. The Never-Old Old School Tieba

Reddit is a social platform categorized by interest communities, similar to the domestic "Baidu Tieba," divided into various sections based on different content themes, which Reddit calls communities or subreddits.

Compared to other mainstream social platforms, Reddit weakens the relationship between individuals and emphasizes the connection of "communities" to people. On Reddit, everyone is anonymous, and users cannot follow each other; they can only privately message or publicly reply in discussion areas.

The humorous r/Funny is the community with the most members, followed by news and gaming categories. Discussions on social topics are the most active interactions among Reddit users. Similar platforms like Twitter allow users to view related content by "hashtags," and Twitter users often engage in discussions about current events. Additionally, Facebook has a Groups feature.

However, much of the content in FB Groups is only accessible to members, and Twitter's "hashtag" categorization is limited. Although Twitter users are highly active in discussions, the matching of "hashtags" and content searches is quite average. Therefore, most users primarily browse and follow content from bloggers, especially KOLs.

Thus, although it lacks features around user relationships such as "instant messaging," "friendship," and "fan interaction," Reddit's unique attributes have created a very clear label in users' minds—an equal communication platform based on interest content. This special brand impression makes users prefer it even more than Pinterest and Snapchat when choosing a social platform

Although it was only listed this year, Reddit, founded in 2005, is a true product of the PC era, emerging alongside social media pioneer Facebook and significantly earlier than mobile-era newcomers like Instagram, Snapchat, and Twitter.

Despite being an older product, its user demographic has not aged alongside it. Even now, it remains a platform more favored by younger users—48% of its user base is under 34 years old, and 71% are under 45, second only to Snapchat.

Having weathered 20 years, Reddit has its legends. In recent years, the most notable event was the "retail investors vs. Wall Street" meme stock frenzy—GameStop, a core target, skyrocketed from $4 to $120 in just 20 days in 2021. Reddit's "WallStreetBets" and "GameStop" communities were the main battlegrounds for this event.

Despite its fame, Reddit only filed for an IPO for the first time at the end of 2021, and due to the bear market in U.S. stocks in 2022, it postponed its listing until this year. One core reason for the 20-year wait to go public is the challenges in monetizing the platform.

A "brutal" intuitive comparison:

Before its listing at the end of 2023, Reddit had 73.1 million daily active users (DAU) globally, with nearly half from the U.S. Among similarly sized community platforms, Pinterest, which is already listed, had a DAU of 130 million by the end of 2023. However, Reddit's ability to monetize traffic is significantly weaker; in 2023, Reddit's revenue was only $800 million, while Pinterest's exceeded $3 billion, a difference of three times. This monetization efficiency is even less competitive compared to Facebook, which was founded in the same year.

II. Why is it well-received but not profitable?

Reddit is undoubtedly a platform with a good reputation among users; otherwise, it wouldn't have survived from the PC era to the present. Before the pandemic boom, it could achieve 1 to 1.5 billion page views per month, and in the competitive landscape of U.S. websites, Reddit ranked in the top 10 for traffic. During its first IPO roadshow in 2021, management mentioned that Reddit had 500 million monthly active users (MAU) So what exactly causes Reddit to struggle with monetization? For social platforms, the main monetization method is advertising. When businesses choose platforms for marketing, they not only focus on traffic (preferring platforms with large or rapidly expanding traffic) but also pay attention to the actual advertising conversion efficiency of the platform.

However, before 2023, Reddit lacked advantages in both high traffic and high ROI. The reasons behind this are, on one hand, the platform's inherent "deficiencies," and on the other hand, the management's "failure to act."

1. True Decentralization

Compared to other social platforms, one of Reddit's biggest characteristics is its "populism," which weakens the influence of the platform and KOLs. Users have a good experience on the platform, but this clearly affects the advertising effectiveness for businesses.

Users come to Reddit based on communities or posts they are interested in, or they "actively seek content" through search, rather than being "passively exposed to content" through platform recommendations. Additionally, users cannot "follow" each other (they can only "private message"), which means there are no KOLs on Reddit.

This is fundamentally different from the mainstream method of current social platforms, which achieve "content finding people" through platform recommendations, essentially concerning the ownership of traffic distribution rights.

Under Reddit's approach, traffic belongs neither to KOLs nor to the platform itself, but truly belongs to the community. However, each community, aside from adhering to the platform's basic content guidelines, is primarily self-governed. While there is usually a moderator, their job mainly involves maintaining basic order in the community, filling content, and reviewing toxic content. Moderators are mostly motivated by passion, and the platform does not provide them with channels for commercial monetization.

Due to the sufficient number of "interest categories," despite Reddit having over a billion views each month, the traffic is dispersed across billions of discussion threads in 10 million communities, with each user able to follow multiple communities simultaneously. There is no unified high-traffic entry point to quickly track users and force-feed them ads. Achieving large-scale user advertising across communities simultaneously is even more challenging.

In short, since the traffic distribution rights are not in the hands of the platform, it is naturally difficult for the platform to monetize. And because they are not in the hands of KOLs, the platform cannot monetize through revenue sharing with KOLs.

2. Limited Active Users

Although the equalization of traffic has won user favor, Reddit has simultaneously maintained an anonymous social approach to encourage users to speak freely, which means users cannot follow or track each other over the long term This kind of relationship that cannot settle can ensure the privacy security of users, but it also affects users' stickiness to the platform: the factors driving users to return to Reddit for active interaction heavily rely on whether users themselves have the proactive need to "find content," similar to a search engine.

User stickiness in this style is inherently weaker than platforms with interpersonal relationships (such as Facebook, Instagram) and those that can passively feed massive amounts of content (such as TikTok). In addition, in recent years, short videos with immersive video experiences have gradually become the new mainstream, and platforms like Reddit, which still predominantly feature text content, are inevitably impacted.

Therefore, despite having 1 billion browsing users per month (source: Statista, the company mentioned a MAU of 500 million during its IPO in 2021), this number is actually inflated, as most of it consists of repeated calculations of unregistered user browsing behavior.

Unregistered users often come from other platforms (search engines like Chrome, AI platforms like Perplexity.ai, social platforms like YouTube, etc.) and cannot be accurately tracked. Although Reddit claims to try to deduplicate as much as possible through identifiers, it is likely that the same unregistered user may still be counted multiple times for repeated visits.

For example, looking at the traffic source distribution of Reddit's web version in November, direct access to the platform accounts for only 1/3, while 95% of the remaining 2/3 of the traffic comes from natural searches like Google.

The company has not disclosed the MAU of registered users, but based on various data sources, it is estimated that the actual number of commonly used users belonging to Reddit after dehydration (registered accounts and users logged in while browsing) is only 120 million.

As a result, Reddit's user count ranking is relatively at the bottom among its peers. Although other social platforms may also include the number of unregistered users when disclosing user data, the difference is that most content on Reddit is publicly accessible to all users, while other platforms may restrict access to certain content and features for unregistered users to varying degrees. Therefore, from a horizontally comparable perspective, the truly stable and trackable user data for Reddit is only this 120 million

3. Turmoil in Management

While the platform's inherent limitations hinder commercialization, as an early social platform spanning both the PC and mobile eras, it is not impossible to enhance user engagement and improve advertising ROI through optimizing product UI and enhancing tracking and measurement technologies for ads.

However, issues with corporate governance have further widened the gap between Reddit and its peers. Reddit has undergone three rounds of management changes, and before 2011, it was mired in content moderation controversies (lacking a content moderation mechanism, allowing users to freely post toxic content such as pornography, gambling, and drugs, which affected advertisers' willingness to invest, and facing resistance from long-time users during the initial content regulation phase). It wasn't until 2016 that the official app was launched, and before 2018, it had not truly established an advertising system.

The turmoil in management has also led to Reddit missing key strategic opportunities during the industry's transformation period, slowing down its growth and normal commercialization pace. Therefore, by the time it went public in 2021, two years after truly beginning its commercialization journey, Reddit's revenue had only just reached $480 million. Although overall traffic may not have changed much, compared to the early community Facebook (Meta) during the same period, Reddit's commercialization lagged significantly behind.

3. Threefold in Six Months, What Did Wall Street Get Wrong?

The bear market in U.S. stocks in 2022 led Reddit's management to temporarily cancel its IPO, but two years later, as Reddit made a comeback riding the AI wave, it brought two new stories to the market:

(1) User Growth Resumes. Before 2023, Reddit's user growth could only maintain single-digit low growth, but in the second half of 2023, Google began collaborating with Reddit. By adjusting its search algorithm, the visibility of Reddit links in Chrome's search results increased, placing them in more prominent positions. This move is akin to Google directing its global traffic of 3 billion directly to Reddit. Behind Google's actions is the aim to obtain more high-quality user interactions and production data from Reddit to enhance its AI large model training.

In addition to closely aligning with Google, Reddit has also benefited significantly from the substantial improvements in AI translation and moderation technologies (OpenAI has also started providing technical support this year), helping Reddit quickly reach international users in non-English-speaking regions. In the first half of this year, Reddit successively launched translation features for French, Spanish, German, and Portuguese Therefore, with Google driving traffic and AI translation, Reddit has seen accelerated growth in Daily Active Users (DAU) since the third quarter of last year, expanding by 50% for both U.S. and international users in less than a year. Of course, a large number of new users come from unregistered users driven by Google search traffic, which temporarily lowers the proportion of registered users. The key point will be how many of these can be converted into regular registered users in the future.

(2) Data Authorization. Starting this year, Reddit has gradually authorized its platform content data to Google (starting Q1) and OpenAI (announced cooperation in Q2) for training large models. Additionally, it has authorized some small and medium platforms for user behavior data analysis.

Given the large amount of real Q&A content on the platform (1 billion posts, 16 billion discussions), it is very suitable for training AI large models, making this a distinctive business for Reddit compared to other social platforms. To draw a simple analogy, other Big Tech companies like Amazon and Apple may have similar needs for large models.

Currently, Google pays $60 million annually, with a three-year contract valued at approximately $200 million. OpenAI pays $45 million annually, also under a three-year contract. In the recently concluded Q3 2024, revenue from data authorization and other sources amounted to $33.2 million, accounting for about 10% of total revenue, with Dolphin estimated that data authorization revenue accounted for roughly 90%, while the remainder came from ad-free premium membership fees and tipping revenue.

However, despite the catalytic effects of the "explosive user growth + new AI business" stories, Wall Street institutions were not very optimistic about Reddit's valuation prospects at the time of its IPO. No institution could have predicted that in the following two quarters, Reddit would continue to deliver better-than-expected performance, with its market value soaring from $10 billion to $30 billion.

Overall, the core concerns troubling institutions at that time mainly revolved around:

1) The issue of "growth potential in advertising commercialization." Institutions viewed Snapchat and Pinterest as the upper limits for Reddit. Considering that in this round of AI technological upgrades, the biggest beneficiaries are the two advertising giants, Google and Meta, with underlying AI technology capabilities, small and medium social platforms and third-party marketing agencies have lost some market share in the past two years due to user privacy protections like IDFA. Therefore, despite Reddit having two strong partners, institutions still found it difficult to see a clear outlook for Reddit's future 2) In addition, there are more concerns among institutions regarding the growth of data authorization. Currently, Reddit's data authorization mainly involves contracts with the two leading platforms, and the cooperation between both parties has multiple reasons, such as the mutual benefits between Reddit and the major players, with Google providing traffic and OpenAI offering AI review and translation technology to Reddit.

Additionally, it's worth mentioning that OpenAI's CEO Altman has been a long-term shareholder of Reddit, so Reddit may not be able to quickly replicate these large contracts with other major model companies. This also means that the growth of data authorization revenue does not have sustainability for more than three years and can only be viewed as a Call Option.

Dolphin Jun has no major objections to the market's views on the data authorization business, but we believe that institutions are overly pessimistic about two indicators when estimating Reddit's advertising prospects:

Reddit's actual user stickiness is not just the 15% or 20% calculated superficially (depending on whether the market recognizes the MAU as 500 million or 1 billion); institutions underestimate Reddit's relatively low substitutability compared to other social platforms, which is based on high-interaction content among real people, leading to overly conservative expectations for user growth.

The management's determination for commercialization has changed significantly; under this strategy, Reddit's relatively low ad loading rate compared to peers can be quickly increased, and the optimization effect of AI on ad ROI can accelerate the compensation for Reddit's lagging monetization efficiency due to its platform attributes.

The operational performance of Reddit in the subsequent three quarters precisely illustrates this "expectation gap."

1) Low user stickiness, limited DAU growth?

This has already been emphasized in the previous analysis by Dolphin 君. Due to its rich and high-quality discussions among real people, Reddit does not lack broad traffic; what it currently lacks is highly sticky user traffic, at least users who can stay and register accounts.

The market is also worried about the "balance between user stickiness and commercialization," that is, when Reddit is actively promoting commercialization, will it also lower user activity due to its impact on user experience?

Dolphin 君 believes that Reddit's actual user stickiness is not as low as the market imagines, and after a massive influx of traffic from Chrome, the actual user stickiness may even be improving.

In the second section, Dolphin 君 introduced the disturbance of logged-out users on Reddit's actual user stickiness. To better examine the stickiness of real registered users, Dolphin 君 specifically analyzed the data from the App side.

On the App side, users need to register first to browse content; although they can choose to browse anonymously after registration, the entry point is deeper, and unless users have special needs, the proportion of anonymous logins should not be large from a usage habit perspective. Therefore, the user situation on the App side can provide insights into actual user stickiness

From the historical trend of changes from 2016 to the present shown in the above image, the global user stickiness DAU/MAU of the Reddit App can reach 40% during stable periods (referring to the level of U.S. users before the pandemic; international users may have lower stickiness due to language translation issues). During the pandemic when travel was restricted, the overall stickiness passively declined due to a rapid influx of new users. However, before 2023, user stickiness had not fully recovered, possibly benefiting from a continuous inflow of new users.

After Google began directing traffic in mid-2023, the MAU sharply increased in a short period, and the stickiness of new users was not high, leading to a brief decline in DAU/MAU, but it quickly rebounded. As of November, the global DAU/MAU has returned to the pre-pandemic high of 42%.

In the current social media landscape, although Reddit's actual usage stickiness is not high, it is not too poor either. The key issue is that Reddit has too few core users, so the future hinges on how much room there is to convert unregistered users into registered users; the current conversion rate is still less than 15% (Logged-in MAU/ total MAU).

This may require significant functional improvements or modifications to the product, especially in terms of content richness expansion. Reddit's recent actions are also in this direction:

On one hand, in July, it announced partnerships with mainstream sports leagues (NFL, NBA, MLB, NASCAR);

On the other hand, starting in early December, it began testing the Gen-AI intelligent Q&A feature "Reddit Answers" (allowing users to use large models like ChatGPT and Perplexity) to enhance the original real-person Q&A AMA and improve user search experience on the platform.

Of course, the ability for user stickiness to reach new highs is inseparable from the traffic and activation driven by Google search and other third-party platforms (mainly several emerging AI platforms). In addition to external forces, AI has also played a positive role in enhancing content recommendation, review, translation, and other aspects.

2) What will improve ARPU?

In addition to the number of users, institutions also have doubts about Reddit's advertising monetization capabilities. After all, in terms of product form, Reddit is text-heavy; in terms of traffic distribution, 50% is on the web rather than the app; and specifically, 50% of the traffic is concentrated in the comments section. These three characteristics make ad insertion appear traditional and stiff Dolphin believes that the potential for imagination here stems from the relatively low commercialization of Reddit, where even small efforts can lead to significant changes, as well as AI's ability to improve overall ROI through more precise user targeting and ad placement.

a. Potential for Improvement in Ad Load Rate

Currently, Reddit mainly places ads in three areas: the Home page, the Popular page, and below posts in the comments section.

At present, the ad load rate on the Home page and Popular page is about 10% (one promotional post for every ten pieces of content), but in the "Comments" section of each post, where user traffic is the highest, Reddit is still very cautious about ad insertion. Aside from general ads placed below posts, frequent ad insertions are rarely seen in the comments section, with Dolphin's grassroots research indicating only about 1-2%. Overall, Reddit has significant room for improvement in ad load rates compared to its peers.

Although it is difficult to completely avoid user aversion during the increase of ad load rates, especially for Redditors who "value freedom" more, if the targeting and recommendation logic related to ads are well executed, user objections will be significantly reduced.

b. AI Filling the Technical Gap

In terms of improving ad relevance, in the past, giants would dominate smaller platforms, leaving smaller platforms to only benefit during rapid user growth. However, with AI filling the technical gap, as long as the platform's unique attributes remain, it is not difficult to use AI to analyze user shopping habits and optimize content recommendation algorithms to improve ad ROI.

The same applies to Reddit. Currently, Reddit has a 50% share of brand ads and 50% share of performance ads. Due to the lack of ROI advantages, the revenue structure heavily relies on large clients, with the top 10 advertisers contributing over 20% of revenue, and even 65% of revenue from performance ads comes from large clients. In contrast, nearly 90% of Meta's revenue comes from performance ads, and despite the high CPM quotes, there are still many SME merchants. This is mainly because Meta, through excellent ad targeting, measurement technology, and high user stickiness, can provide higher ROI for small and medium-sized businesses.

Although Reddit does not fully control the distribution of traffic, making it difficult for the platform to "easily" maximize the efficiency of traffic monetization, AI can provide some assistance: 1) Optimize search entry points and the matching degree between search and content. 2) Help track user behavior trajectories within the platform, continuously optimizing user demand tags to achieve personalized experiences, especially for non-logged-in users. For example, when Reddit tracks that User A is interested in stock investments, even if they are currently browsing a gaming community, they can still see ads from retail brokers inserted into their information stream.

Overall, the reason institutions misjudged user growth early on is that they underestimated the platform characteristics of Reddit itself (user mindset), and while they saw external forces like Google and AI as a boost to the overall user base (MAU), they overlooked that real user stickiness (DAU/MAU) also benefits. In terms of commercialization, they underestimated the significant elasticity that management could bring to the platform in the short term by leveraging AI from “inaction” to “action.”

4. “Infinite” Possibilities and “Limited” Valuation

Google provided Reddit with a chance for rebirth, while AI offers Reddit an infinitely possible future. However, for social/content platforms, it is difficult to accurately judge how large they can grow and how much money they can make in the end.

During the platform's expansion, it will encounter attacks from competitors and may lose user favor due to poor operations, especially when the current competitive landscape is stable, and giants can continue to widen the gap with small and medium platforms by leveraging AI's technological advantages. This is actually one of the main reasons why Wall Street institutions have continuously underestimated Reddit's growth.

Multiple earnings reports beating expectations have led to significant short-term trading volatility for Reddit, and it seems the market is gradually starting to believe in Reddit's “infinite possibilities.” However, the Dolphin believes that whether it is short covering or more bullish investors looking forward, the current $30 billion market cap of Reddit undoubtedly carries the market's relatively optimistic expectations.

In the euphoric growth phase, it is common for market trading logic to lean towards optimistic expectations. At this time, we need to clarify how much optimistic expectation is embedded in the current valuation to assess the risk-reward ratio implied by the current valuation. Therefore, the following assumptions are mainly considered from a neutral to slightly optimistic expectation perspective (not considering data authorization).

(1) User Ceiling

The cooperation period between Google and Reddit is three years. Considering the increasing demand for trainable data from current AI large models, the Dolphin expects Google to have enough motivation to maintain high visibility for Reddit in search results at least during the three-year honeymoon period. ** Correspondingly, the exposure of other platforms will naturally decrease (for example, Pinterest executives indicated at the end of last year's earnings call that adjustments to the Chrome algorithm indeed affected their user growth), which essentially reflects that Reddit is capturing more user attention (DAU * duration) from its peers.

Under this mid-term assumption of a three-year cycle, Reddit is expected to maintain rapid user growth during this period, with greater potential for international users. Compared to other peers, Reddit's proportion of international users is still relatively low, and with the improvement of multilingual translation features, it is expected to quickly close the gap.

Therefore, Dolphin Jun expects that in the next three years, Reddit will reach 200 million monthly active users (MAU) in the U.S. (by enriching the functional rights of logged-in accounts to compel users to register, based on BofA's survey data, nearly 30% of users do not use Reddit at all, assuming Reddit's MAU in the U.S. reaches a penetration rate of 70%), according to the real user DAU/MAU ratio of 30% to 40% (Web + App), it is estimated that the neutral to optimistic expectation for U.S. DAU will reach 60 to 80 million users by 2027, with a CAGR of 8% to 18%.

As for the potential of international users, benchmarking against peers, we believe that within three years, Reddit is expected to achieve a scale of international users that is 2x that of U.S. users, which means 120 to 160 million international DAU, implying a CAGR of 35% to 48% from 2025 to 2027.

Note: The expectations for users imply the assumption that Reddit will compel anonymous users to register accounts in the future. Therefore, when estimating the total user scale, no distinction is made between registered and non-registered users.

(2) Advertising ARPU

Dolphin Jun has previously analyzed that, apart from AI, the improvement in Reddit's advertising ARPU comes from more intuitive drivers:

Increasing ad loading rates, including inserting ads that are highly relevant to user consumption habits in the most trafficked discussion areas;

Adding search ads, as the content of communities/discussion threads becomes richer, users will increasingly seek answers and help through searches, thus moderately inserting highly relevant ads or posts operated by advertisers themselves in search results can also enhance monetization levels;

E-commerce ads that directly guide link transitions , based on Q&A formats and contextual discussion formats, are very suitable for inserting marketing copy for brand promotion, while also providing one-click links to order on e-commerce platforms/merchant independent sites, which is expected to provide merchants with high ROI marketing paths.

With the direction set, the effectiveness of implementation still depends on the management's execution capability. Although there have been no signs of stable improvement in overall advertising ARPU this year, if we assume that only logged-in users are truly effective traffic for advertisers, then based on the calculation of "advertising revenue/logged-in user DAU," we find that Reddit's advertising ARPU actually shows a gradually improving trend

Therefore, Dolphin Jun still assumes from a neutral to optimistic expectation perspective that if Reddit's execution is good, the daily active user ARPU from advertising in the next three years can be higher than Snapchat's current level but lower than Pinterest's, mainly due to:

a. Currently, users on Snapchat focus more on instant messaging and entertainment functions, with weak proactive shopping intentions. Although Pinterest does not have high user duration and user stickiness is average, users from Pins have a strong shopping intention. It is primarily a platform for content recommendation and sharing, making it very suitable for businesses to engage in grass-planting marketing, similar to Xiaohongshu in China.

b. Snapchat's push in e-commerce advertising, including AR Shopping and Spotlight, is more suitable for brand advertising, but brand advertising inherently has lower conversion efficiency than performance advertising. However, the combination of Pins' image content format + content marketing strategy + superior algorithmic recommendation technology results in a higher proportion of performance advertising.

In the above two points, Reddit does not have the issue of the first point, but in terms of increasing the proportion of performance advertising, Reddit still needs to be strengthened. Therefore, under neutral expectations, it is estimated that Reddit's ARPU in the U.S. can reach a monetization level of $35/year by 2027, compared to $18/year in 2023, with a CAGR of 32%. Under optimistic expectations, if Reddit can achieve 80% of Pinterest's performance, that would be very good, which means ARPU = $60/year.

The ARPU in international regions is highly correlated with local GDP and has uncertainties in localization; therefore, apart from absolute leaders like Meta, Pinterest and Snapchat do not perform too differently.

Ultimately, Dolphin Jun's expected ARPU values for Reddit in different regions are as follows:

Combining <1-2> calculations, we also smoothed the growth trend of Reddit's advertising revenue over the next three years according to different expectations for 2027.

(3) Profit Margin EBITDA

Currently, Reddit is still in a loss state under GAAP standards due to insufficient commercialization and high SBC costs. As the company develops AI technology, it will need to invest in some server chips and other inputs, which will also affect the pace of loss reduction in the short term. Therefore, we choose to focus on EBITDA to avoid the disturbance of these factors With the advancement of commercialization, Reddit's EBITDA turned positive starting from Q3 2024, achieving the management's goal of reaching breakeven this year ahead of schedule after its IPO. In addition, management has provided a mid-term profit target under stable conditions—an adjusted EBITDA of 40%, assuming that SBC's proportion of revenue decreases from 20% to 17%, which corresponds to a GAAP EBITDA target of 23%.

Dolphin believes that as long as commercialization progresses normally, achieving a profit target of over 20% during the low customer acquisition cost period brought by traffic from Google, OpenAI, etc., is not difficult. Compared to peers, this profit level is not particularly high, which conversely means there is still room for optimization.

However, for growth companies, since profit levels are far from stable, the market often directly compares the EV/Sales of different platforms to assess valuation space.

For example, currently, according to institutional consensus expectations for revenue in 2025 (CIQ), the valuation multiples and CAGR growth rates for social platforms like Meta and other peers are as follows. When combining valuation and growth (revenue growth rate), it is clear that the market has given more "valuation preference" to the leader (Meta). In Dolphin's adjusted performance expectations, Reddit's valuation is roughly similar to the other two, with the valuation/growth ratio basically around 0.3.

Ultimately, based on Reddit's potential growth space under different expectations and its current profit level, Dolphin uses a relative valuation method to estimate Reddit's valuation range at $23 billion to $35.5 billion (short-term pessimistic expectations are not very meaningful). From the current market capitalization of nearly $30 billion, although Reddit has consistently beaten the consensus expectations of investment banks, the current buyer-side trading valuation still incorporates some more optimistic expectations.

Dolphin's optimistic expectation of a $35 billion valuation not only implies that Reddit's commercialization is progressing very smoothly (with a faster pace and monetization efficiency exceeding Snap in three years), but also that the 19x valuation multiple, within the historical valuation levels of social platforms, reflects a relatively sufficient trading sentiment. Therefore, even if there are more positive stimuli for the stock price (such as favorable news related to data authorization business), this position should still be regarded as a bubble warning line in the short to medium term