RDDT

We rate Reddit, Inc. (RDDT) as a Reduce with a composite score of 49.4/100 at a current price of $142.00. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in quality (70th percentile) and momentum (50th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (31th percentile) and stability (33th percentile) tempers our overall conviction. We assign a Narrow Moat rating (60/100), High uncertainty, and Standard capital allocation.

Key items to watch: sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Reddit, Inc. holds a top-quartile position (#0 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 49.4/100 places it at rank #2102 in our full 7,333-stock universe. With a $43.0B market capitalization, Reddit, Inc. operates at meaningful scale within the Services sector, providing competitive advantages in distribution, procurement, and customer reach.

Revenue is growing at 108%, though momentum at the 50th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 91% (+31.0pp vs sector) narrow to operating margins of 10% (+6.5pp vs sector) and net margins of 15.2%, yielding a gross-to-net conversion rate of 17%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $142.00, Reddit, Inc. is trading near fair value based on current fundamentals. Our value factor score of 46/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 93.2x (a 292% premium to the sector median of 23.7x), EV/EBITDA of 132.2x (at a premium), P/B of 9.8x, P/S of 15.7x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a High uncertainty rating to Reddit, Inc.. Key risk factors include elevated market sensitivity (beta of 2.06), below-average price stability (33th percentile), elevated valuation multiple (P/E 93.2x) that leaves limited margin for error. The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 2.06); below-average price stability (33th percentile); elevated valuation multiple (P/E 93.2x) that leaves limited margin for error. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 33th percentile and quality factor at the 70th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 91% provide a buffer against cost pressures; conservative leverage (11% D/E) limits balance sheet risk. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate Reddit, Inc.'s capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 10.5%, and the balance sheet is managed within acceptable parameters (D/E: 11%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; Reddit, Inc. falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. Absent a dividend, the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, Reddit, Inc. receives a Reduce rating with a composite score of 49.4/100 (rank #2102 of 7,333). Our quantitative framework assigns a Narrow Moat (60/100, trend: stable), High uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 46/100.

Our analysis does not support a constructive view on Reddit, Inc. at this time. The combination of the current quantitative profile, high uncertainty, and standard capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.