Yet Another Value Podcast - Best of Breed Growth Stocks' Julian Lin thesis on king of the meme stocks, Reddit $RDDT

Episode Date: April 29, 2024

Julian Lin, Founder of Best of Breed Growth Stocks, an investment newsletter, joins the podcast to discuss his thesis on Reddit, Inc. (NYSE: RDDT). $RDDT write-up on Seeking Alpha: https://seekingalpha.com/article/4686257-reddit-julian-lins-top-conviction-idea Chapters: [0:00] Introduction + Episode sponsor: YCharts [1:22] What is Reddit $RDDT and why is it interesting to Julian [2:58] $RDDT bull case [14:09] Network effects [20:46] $RDDT bear case: when will they become profitable? What are they spending R&D on? [30:45] Valuation [33:48] $RDDT vs. tier 2 social media platforms (Pinterest, Twitter, SnapChat) / mismanagement [45:27] Valuation cont'd [56:53] $RDDT Growth strategy [1:02:23] $RDDT's Biggest misperceptions This episode is sponsored by our friends at YCharts A typical day in the life of a financial advisor calls for back-to-back client meetings, juggling portfolio management, and the consistent desire to improve client relationships. YCharts’ report and proposal tools could be the missing piece to help you effectively handle these time-consuming tasks. Now more than ever, clients want to hear from their advisors. And with user-friendly templates at your disposal, generating impactful client reports can be easily integrated into your everyday routine, helping you free up time and focus on what matters most: enhancing client interactions and growing AUM. Join thousands of users who rely on YCharts by leveraging personalized proposal reports to truly showcase your value add. Click the link in the show notes to start your free YCharts trial and tell them I sent you (new customers only): https://go.ycharts.com/yet-another-value

This episode is sponsored by our friends at YCharts. A typical day in the life of a financial advisor calls for back-to-back client meetings, juggling portfolio management, and the consistent desire to improve client relationships. Wide Charts report and proposal tools could be the missing piece to help you effectively handle these time-consuming tasks. Now more than ever, clients want to hear from their advisors. And with user-friendly templates at your disposal, generating impactful client reports can be easily integrated into your everyday routine, helping you free up time and focus on what matters, enhancing client interactions and growing AUM.

Join thousands of users who rely on Y charts by leveraging personal proposal reports to truly showcase your value ad. Click the link in the show notes to start your free Y-charts trial and tell them I sent you, new customers only. All right, hello, and welcome to yet another value podcast. I'm your host, Andrew Walker.

If you like this podcast, it would mean a lot if you could rate, subscribe, review, wherever you're watching or listening to it. With me today, I'm happy to have on for the first time, Julian Lynn. Julian, how's it going? It's going great. Excited to be here, Andrew.

Well, I'm excited because you told me I have a monopoly on single, single stock idea of podcast, and I just love the idea of having a monopoly on a small niche. But before we get started, let me just remind everyone that nothing on this podcast is investing in advice. You know, please consult a financial advisor, do your own research. Nothing on here is financial advice. Julian, you reached out to me, and I'm really excited you did because, you know, the king of the meme stocks, I don't know if it's the king.

Reddit went public last. Was it last month at this point? I can't remember it was earlier this month or last month. But they went public last month. The stock obviously generated a ton of interest, lots of people with different views on it. You put a great article up on Seeking Alpha, which I'll include a link to in the show notes. And you said, hey, I want to come on and talk Reddit. And I said, look, I'd love to talk something a little different.

So company we're talking about is Reddit, just went public, ticker is RDDT. And I'll toss it over to you. What is Reddit and why are they so interesting? So Reddit is a social media platform. I mean, I'm sure many listeners are familiar with it. But to me, the interesting point here is that it's just because it just came out. When you think about the timing as it came out, it's coming during a time of the market is clearly quite frothy, especially the tech sector. And so when you have a company that already before it came public, people already thought of it kind of as a mean stock just because Wall Street bets the home. of the meme is hosted on Reddit.

So it comes out, as a meme stock, comes out during a frothy market. It's very easy to just discard it, right? But whereas I'm doing this thing, and I'm seeing a company that arguably has a stronger business model than we'll talk about. And the valuation is quite compelling here.

Meanwhile, there's a five-month IPO lockup period. So that's just kind of a quick teaser there for Reddit. Let me start with a few. few things. So I think the most frequent bear case is going to be, and I probably kind of fall into this case like, look, Reddit, you know, you look at 2023. They're still burning cash flow. They're EBITDA negative and that's adjusted EBITA. So it ignores 50 million in cash comp and they're coming public at, you know, I think it's about a $6 billion-ish market cap right now, a billion and a half of cash on the balance sheet. So a lot of cash, but you know, that's a we're trading at a

big multiple. It's under a billion in revenue, big multiple cash burning. It's been around for a long time. I think that's the bear case, and we can discuss that later. But the bull case is interesting to me, to me too, right? Like, hey, we have seen social networks come public before, and all of them, you know, they've tended to do well. You think about the bear case here is very similar to Facebook 10 years ago, Google 15 years ago, Apple, iPhones, just a flash in the pan, Twitter, which, you know, it kind of worked out well in the end.

So I guess I just want to start by just forget the trailing financials. We'll talk about them, forget them, but what is the bull case? What do you see when you say, hey, this is stock, I want to go long? This stock I think I can generate alpha investing in. What do you think the bulk case here is? Yeah, and I'm sure we'll go more in depth, but just very quickly. I guess the reason why this is so unique is I'm viewing it as a clearly under monetized company. I mean, I think you've talked previously about some quality bubbles for like Costco.

I mean, I wasn't on present there, but Costco, there are some critical reasons. understand about Costco, some critical reasons by Costco stock is so expensive, it's under-monetized. It's very similar to a Chipotle stock and Amazon stock. You got these names that they look expensive on the current multiples, but the reason for that is because they're just under-monetized. They're not making as much money as they could be or should be. Reddit is, in my view, clearly of the same.

It has a huge user base, and as we'll discuss later, much of that is critically in the United States for the social media companies typically their highest average revenue per user comes from American users just flat out but more than half of Reddit's user base is just in America

that's very unique compared to So that was one of the things that jumped out to me why is Reddit space so domestic focus because look I understand they're building communities and you need a community but you know one of the ones I think they lead off with is like in one of their S-1s or something is a Game of Thrones community, right?

Like, a Game of Thrones community is going to travel pretty well between here versus everywhere in Europe. They do international dubs. Squid Games community is going to travel really well in South Korea. I was really surprised, like, there's 300 million, 350 million people in the U.S. There's 7 billion worldwide. I was surprised how U.S. focus is.

What is it that kind of got the flywheel rolling in the U.S., but not internationally? So I'll say it's a combination of two things. One would be read it's very English focused. And I would say perhaps prior to generated AI, it's not just so seamless to translate English into a different language. I'm sure a lot of listeners probably use maybe some like Google Maps. And you would see maybe some translated reviews of if you ever hear an Asian rhetoric

and might get some translated Chinese reviews or translated Korean reviews. And you're like, I mean, it's pretty good. good, but I mean, I can tell it's translated. So if you already could have that feeling when you're looking at a Google Map Review, when you're trying to hunt a social network, an American post is probably not going to translate culturally on international. So that's the first bit. The second bit is definitely, it's also very similar to the under monetization bit. There's some mismanagement here. There's clearly, there's a clear difference in terms of the management teams of Facebook or sorry, of a meta platform versus Reddit. Besides the under monetization,

they're probably not pushing as hard as they should be internationally in terms of just executing and entering these markets. You're going to have to hire some people to create some posts and so forth. There is some mismanagement here as well. So just I want to go to one thing you said right at the front there. So is generative AI, I mean, we can talk. They're starting one of the bull cases is actually they have a huge license deal, I think, with Google for learn machines.

But we can talk about that later. just on the generative AI piece, is that a bull case for Reddit? Like as AI gets better, learn language models get better, like my English pose translate into my wife's in the background. So I'm saying Polish or Chinese or something, it kind of opens up the communities more. Yes. I haven't seen this written anywhere, but this was something that I had to do just because their lack of international exposure, it's an opportunity, but it's also a risk where it's

like, why haven't you already traded these communities internationally? So I view generally AI just because it's, you know, very good at translating as being a potential catalyst, at least in disrespect. But beyond that, when you think about meta, I'm just, just take a couple of years back. Meta two years ago, I believe, everyone hated meta. First of all, tech stock trashing, but meta specifically, we are worried about TikTok. Now, no one talks about TikTok, but, I might revive investors, and I, a big investor in meta, I'm saying this, TikTok still exists.

The competition from TikTok has not disappeared. The only difference here is that meta has, they've really executed on their artificial intelligence, not necessarily generate AI, but artificial intelligence to improve the quality of their feed. They were facing issues where they could not track your apps, you know, besides Facebook. You cannot track your Google searches anymore for the younger generations. and they're facing TikTok competition. So growth is slowing, but now that they've used AI to boost the content of their feed,

you know, growth has returned. That doesn't mean TikTok competition has disappeared, but that does indicate kind of the benefit that generated AI could have for a platform like Reddit. And adding to that, it's important to note that I don't view Reddit as having that same TikTok threat, just given that it's a filling a different niche than the Facebook, whereas Facebook, Snapchat,

take talk they're all very they're all they're all competing for the same market there no it's a great like if i wanted to go so way of kings i i don't know if you read fantasy books i i love fantasy books anybody who reads the blog knows i do fantasy books and one of the best of all times is way of kings and unfortunately it's been 12 years since the second book came out we're all waiting on the third book but there are all these theories and stuff and if when i read the second book like what i did was i typed in you know uh way of king sorry this is king killer chronicles king kill King Killer Chronicles, second book or whatever. And there's this whole Reddit discussion.

And like, if you're a startup social network, that's, that's, you know, people talk about threads trying to recreate Twitter and how difficult that was and how ingrained that social network got in. That's almost trivial compared to, you know, 10 years of fan theorizing on King Killer Chronicles and what's going to happen next, like recreating that social network. That is really hard. And these things are Wall Street bets going and recreating the communities there. Like, it's not only got the community, but unlike Twitter where people are just responding to the day's current events, and that's a very powerful social network.

Now, monetization is a question, but that's proven very powerful, right? Threads couldn't do it. A bunch of things couldn't do it. With this, it's not just, hey, you've got the communities. Hey, you've got the up to speed. You've got 10 years on a lot of these things, you want to go back and reread the 10 years worth of posts. Or, you know, we'll probably talk Google search results later. But as you and I were talking, I was looking something up and Reddit was, you know, one-year-old,

Reddit posts were popping this at the top of the Google search results. And this was, sorry, right before we were taping. And this was not for something podcast related. I was looking up something else and was just getting old Reddit post. So it just shows how powerful, like, it's social network plus historical data. That's a very powerful combination. I'll let you comment on anything you want to say there. Yes.

So I think of kind of alluding to what I mentioned before, where, you know, you got Wall Street, all these very, very experienced, respectable investors, just ignoring Reddit, because it has this connotation with a meme stock, right? But again, when you think of a typical meme stock, you've got like Harvana or GameStop or AMC, you've got these names going out of business. But as you've mentioned, Reddit, it's not only is it.

I'm just going to say, I know one passionate listener. I'm not sure if he's going to listen to this episode, but saying Carvana as meme stock and going out of business, he's going to take great offense to comparing it to GameStop and AMC, probably rightly so because while it is hotly debated, I don't think they're going out of business. I think that risks in the past. But I'm just saying that for the listener.

I'm sure he'll be on the back end. No, this is a fair point. Yeah, it's not one year ago where they're facing liquidity issues. And you could argue they have more secular growth than maybe AMC and GameStop. But they're kind of in the same vein. Or at least they have a ton of debt. You know, you got these names. They either have some business model issues.

A ton of debt. Growth is kind of iffy. Reddit does not fit in there, despite the fact that everyone seemed to believe Reddit's a meme stock. So we talk about this business model. Yes, if you were to Google, for example, tax they just passed. I had some questions on taxes. When I went to search on Google in the past,

maybe you might look at TurboTax forums. They're not so useful. But where is the most valuable information? It's going to be Reddit. Reddit is going to have the most valuable information for everything, kind of alluding to what you were saying before about replication. Yes, so there's not, the competition here, or the barriers here is not technological, at least not yet. Like if you think about Reddit, it's just, and this is a typical bear case, which I believe is quite lazy, it's just a forum.

Okay, so people might think, oh, it's just a forum. It looks very cheap. It looks easily replicatable. This is true. I would imagine the tech behind this is not that great. No, not to the people at Reddit, but the key here is, as you mentioned, the network. I remember one of my friends who isn't a programmer. He said, oh, Twitter, you know, I can recreate Twitter in half a day.

Like, as you're saying, cool, you can recreate Twitter. You know what the hard thing is getting the users on board? Like, this is very network effect. Please continue. Yes. And beyond that, like, so you might have these small forums related to, let's say, a dog in California, like dog lovers in California, you might try to have one little Facebook group or one little forum.

But to scale that, it's probably, it's going to be very difficult. You're not going to, you're not people to expect much ad revenue. It's going to be very hard to create this kind of competing forum against Reddit. I view, I mean, just if you would forgive me, I view Reddit as the one forum to rule them all. Sort of, it's got every single forum for every single region, for every single topic in the same place. So if you're going to go create a new forum or join a new forum, they're all, it's kind of, it's basically consolidating all the forums to go to Reddit. Let me just ask a question on that. So that is an interesting one because I could, on one hand, I could see that, right?

Where it is one form and, you know, they, I think there's a line in the S1 about the average user after five years on Reddit has joined approaching 50 forms like they subscribe to, right? So I could see how you've got the network effects. But on the other hand, I could see like you're really subscribing to Reddits for, there is what you and I talked about where we Google, Reddit's at the top and you get some information. from Google, but you're really subscribing to Reddit because you are passionate about a community and you want to talk on a daily basis. You know, I'd imagine something like I'm a big WWE fan. I go to Reddit so I can be involved and be posting theories on, hey, is the rock coming back for WrestleMania?

Who's going to win? That type of stuff, right? I could certainly see that. But if I'm a big WWE fan, I'm not sure that having a Reddit profile. I mean, the proof might be in the pudding, but it might not completely subscribe to, oh, I'm also a huge nerd when it comes to, I'm really into tax law, right? So I subscribe to the WWE fandom and the tax law fandom. I'm not sure how much that carries over.

And the reason I ask is because, like, Brandon Sanderson, I said, I'm a big fantasy book lover. I could have met, I went to Reddit to read a bunch of Brandon Sanderson's theories. I could imagine how people, you know, celebrities are getting better about monetizing and building relationships with their fans. I could imagine how Brandon Sanderson, he's got a Brandon Sanderson Wiki. like he wants to say hey forget going to reddit come here all engage with you on my own platform and that's got a lot of benefits for me in terms of hey i might be able to monetize it i can build direct relationships i can point you and i could see how over time or risk to reddit would be

yeah they've got all these niches and a lot of them aren't going to roll up but the biggest niches you know the wwee the brandon sanderson uh marvel movies they want to build their own little sub communities of reddits and like there's not so much a scale where you need to to join like 15 different. Does it does all that make sense? I threw out a huge story and absolutely absolutely and I think and this will also um be a good segue way to like where how I view the business model relative you know to Twitter and Instagram but first kind of addressing what you're discussing um so the way the way of you read it is like it's you go there um you're going to be very passionate about different things some more secretive than others um

but yeah maybe you're interested in fantasy books you're also interested in fitness It's not so convenient to go to different websites for each different hobby. There is a view that you can go to one website and you get everything. This is kind of the other of Instagram, for example, or Twitter, where everything is there, okay? So there's that advantage. As far as some people may be going out of Reddit and trying to host it on their own, it's possible. But I think probably actually very unlikely for a couple reasons. typically people actually

they are going to Reddit and just doing some Ask Me Anything. I think that's kind of started on Reddit, right? The AMAs just because you get a big reach. Typically when these people are trying to do something, the most important thing is that reach. It's not really

monetizing the users up front. And I can't really think of a whole lot of times where the celebrities or these business models are trying to create a forum and monetize a forum that tends to be a little, that tends to be very neat. you know celebrities haven't and you know the counter to this might be hey celebrities haven't

but i will say like a brandon sanderson or a walver universe they they've done some stuff and brandon sanderson's at the cutting edge he's to go but a counter this as you're saying taylor swift doesn't want to run our own form and not only has she not done it and she doesn't want to she might not want the the issues associated with the moderation you know we should probably talk reddit's moderation at some point she might not want the issues associated with hey, I'm Taylor Swift. I've got 500 million teenagers who are really involved and want to be on this forum. And, you know, 499 of them are going to be great.

But a million of them might be trying to, you know, do illicit dealings. Or there might be 100,000 people who shouldn't be involved with the teenagers on a website who are trying to like it. Like, they might just view it as, hey, cool, like, look at Reddit. They're even like, they're not really making a lot of money. If I get the, if I create a Reddit competitor, great. There's no real monetization. thing there, and I'm going to have this huge moderation headache. So, yes, but even if they were profitable, just think about Instagram, right?

Instagram, Facebook, they generated a 50% operating margin on Instagram, Facebook, the family of apps over the last two quarters, 50%, 50%, 52%. And I think that's low compared to what their long-term target will be. It should be higher than that. If you're familiar with what it looks like inside a tech company, it should be much higher. and they're generally 50%. Yeah, this margin is not really attracting people to create some kind of niche Instagram or niche Facebook.

They might do it, and they do do it. It's sort of like the Shopify and Amazon. You're still going to have your own thing. It's not going to be a company, but Instagram, I definitely hear you, but Instagram is, A, there's huge scale, storage costs, everything, but Instagram is one giant thing, right? You're getting my feed, I want everything in my feed

and their algorithm serving to me. Reddit, like, if, I'm into Brandon Sanderson, I do not care if somebody is coming with a Magna content or Game of Thrones content. Like, I don't care. If you put that in my feed, it would actually be detracting from it. So I think there is the risk where it's just, as you said, one feet to read them all, but I only care about one or two feeds. And if somebody has like better access that, you know? It could be, but I would counter that Facebook, Instagram used to be the same, right?

prior to them implementing the AI to run their feed, right? They used to only show you things you followed or people you followed. That used to be what Instagram Facebook do. I remember those days, yeah. 75, and that was dangerous because when Apple said you can't track stuff anymore, and when TikTok starts competing, both stopped, and then you got macro, blah, blah, blah. So, but now I think they're saying 75% of content that you see on your Instagram and Facebook if you're a frequent user, is not stuff you follow.

Okay. So I would just counter, yes, maybe some Reddit users. They might only want the Reddit communities that they follow, but I see them trending toward that Instagram Facebook model over time. And Instagram, Facebook, users have shown that they could make that transition pretty seamlessly. They're clearly still using it. I will say I go back and forth between having Instagram installed on my phone or not, but I'm just impressed.

So it knows me so well where, you know, six months ago, all I was getting was workout videos. And today, all I get are like parenting videos. Like, it's just crazy how well it knows you. And I never put in, hey, I'm a parent. It just, I think my wife sent me one and it started watching the feed. It's really good. Let me go to, I should mention there's this great Paul Graham article that he posted right when Reddit went public that was talking about the sickiness and the history of Reddit, which I thought was really good. I encourage people to read it.

I'll try to include a link in the show notes. But I want to ask something on that. So let's go to, there are a few bear cases here, right? A lot of them would be valuation. We can talk about that. But the bear case to me that jumped out was, hey, Reddit is 20 years old. They are run by their co-founder, right? Obviously, things have advanced.

But if I looked at Reddit, I would say, okay, you had in 2020, 2021, you had the COVID boom, meme stocks went crazy, all this sort of stuff. we're in 2024 and the company, you know, kind of still isn't profitable. Daily active users are actually accelerating the back half of 23, which is awesome. But, you know, I'd kind of say, hey, if these guys can't turn a profit, like their peak time should have been late 2020, early 2021 for engagement usage, monetization, all this. If they can't turn a profit, then, like, man, is it going to be a hard, a long road to hoe? Like, shouldn't they have already been doing this? Like, why do I think this can accelerate right now?

So let me turn that question to you. Yes. And I'm not sure that was Jerry Beercase. On my preparation for this, I called that a lazy bear case. I'm sorry. Yes, I saw that very, very frequent, extremely frequent, especially from some investors I greatly respect and follow. So a little disappointing. But yeah, so, yeah, very, yeah, I've heard this many times.

The idea is, oh, why aren't they profitable yet? It implies they will never be profitable. So there's two things here. Reddit specific and choose just tech sector overall. Let's start with tech sector overall, though. I'm not sure, I assume, of course, a lot of your business is more value investor focused. Perhaps they kind of just ignore tech stocks

if they crashed in 2022 and recovered. But maybe this is a good time to talk about tech stocks, because, yes, tech stocks are rich again, okay? But this is not directionally, this is not the same thing as 2021 tech stocks. There's a very important difference. that maybe some value investors who aren't following tech stocks have missed. Okay, so heading into this 2022 tech stock crash, yes, valuation is big.

Valivation is still big now after the recovery. But there's this notion on Wall Street that tech stocks are exactly what you said. They aren't profitable yet. You got all these companies with billions of revenues, and Reddit only has a billion. You got these companies, billions of revenues, not profitable, not even like non-gap profitable, okay? And you're like, why can't, they're just never profitable. So during the, when the tech stock trash, you're thinking, thinking, their valuation doesn't make any sense because they're just not profitable.

There's no valuation of support. They just keep going down. That's what happened. Okay. But what happened over the last four quarters, and this is important to verify this, tech stops across the board, right? So you get growth rates decelerating in a tough macro environment for interest rates are rising. So top line growth is going slower, which would in, which in theory should imply that operating leverage is harder, right? You can't have operating leverage without, you know, top line growth. But what happened was profits. You got, you got these margins jumping 1,000 basins points, 20,000 basins points, 3,000 basis points. Some, many companies going from non-gap profitability to gap profitability. A lot of companies going from not probable to

this is, this is Facebook slash meta's year of efficiency, year of leaning. I mean, I certainly hear that. But I guess my pushback to you would be, okay, I hear that. But Reddit, you know, I'm doing the numbers from memory, but I think in 2020, they lose $150 million in adjusted EBITA. In 2003, they lose $100 million adjusted EBITDA, right? And the business actually did grow in 2023. I think it was about a 20% grower in 2023. So cool, they're closer to break even, but that's not like year of,

that's not my year of efficiency, my year of leaning out, right? Like you grew 20% and you basically, the revenue fell through to the bottom line, but I'm not seeing huge cost cuts. Like, I don't know. It's a 20-year-old business. When am I going to see some adjusted EBDA? profits here, you know? So the idea is that these text talks have shown, obviously there are going to be the lemons, but the idea is just think about an Amazon, okay? Amazon right now, no one is

going to doubt that Amazon can make money, okay? But if we go even just 10 years back, people are doubting that Amazon can make money or whether they made 15 years. We are doubting that Amazon can make money. They had just no profits literally for maybe decades. But what do they do? And this is not just specifically Amazon's, every tech company. What they do is every time they grow, they just reinvest that growth, the growth and, sorry, gross profits into headcount. So it doesn't look like investment in growth, but they basically just keep growing their R&D, their, you know, their terms. I hear you there, but Amazon, you know, like Amazon is growing and they're going into huge new business lines. They're building out some of the most incredible logistics we've

ever seen, you know, they're building up AWS, they're building out Alexa, they're taking a shot at phones, like I guess my pushback, and I think a lot of bear's pushback would be, okay, Reddit, what are you investing into, right? I saw this in multiple people who commented on when I said you were coming on.

R&D is, I can't remember the exact number, but R&D is a huge number here and it's similar to the old Twitter argument, and I'll come back to the old Twitter argument in a second, but what are you spending all this R&D on? You know, like it's literally the app and the website, I'm not going to say are the most technologically sophisticated.

It's one of those things people you say, Twitter, you could run this with four people. Like, Reddit, I'm sure you might need a couple more, but they have free moderation. And it's not like the app is like making new grounds or not introducing new products. Like, why aren't we seeing the year of efficiency? Why are they, what are they putting so much R&D research development into? Yes, but I guess I'm interpreting it differently here. So my point here is we're seeing the company not profitable, but that fact that they are not profitable does not mean that they're structurally unprofitable. It's the big challenge with these tech companies is because is that margins are not their long term margins, whereas when you invest in the typical value stock and like, you know, the typical stocks you get on your on your platform, those margins are probably peak margins if we're being clear, right?

They're not, you're not going to expect these margins to go up, you know, 20%, 20%. They tend to be kind of very mature businesses that they've already tapped out in terms of all the cost cutting, for example. They already cut all the fat out. This is important, right? You got these very efficient, streamlined businesses, cut the fat out. They've already leveraged their businesses to the core. All right. And so margins are going to be flat at best.

Maybe they go up a little bit with inflation, right? That's the typical non-tech model. But what my point here is, with. the tech and it's you can be very we can verify by looking at many of the companies that that's not the case of what they're doing is it's hard to say because they're not profitable so they're structurally unprofitable but it's hard it's hard to know if they're actually choosing to be unprofitable in order to invest aggressively there's a big difference between no i hear you but i'm asking what what is reddit investing into right because again i think

the bear case uh some of the bear case i saw i saw a lot of questions they're investing all this money to R&D and I look at the website and the app. I'm like, this is a business that I, you know, there used to be the question with Twitter, what are you spending $2 billion in R&D on? I look at right. I'm like, what are you spending all this money in R&D on? I understand investing into growth. I just don't understand what they're investing in to grow. Sure. And I don't think anyone besides the Reddit team will know that answer. But my point here is that as investors, right? The key thing to focus on is not the fact that they're unprofitable and they've been investing so much in apparently this very basic forum.

It's more, or let's take Twitter, for example, right? You look at Twitter, I know that you are also an avid Twitter user. The experience hasn't, it's a little different, but it hasn't degraded necessarily from maybe prior to Elon Musk taking over. But it's very famous to know that Elon Musk, what, made off 75% of the team. So the idea here is just how you interpret the data here. So like we got ready to spending all this money on R&D. You don't know what it is. You could either say, oh, it means they're structurally unprofitable, or you could think,

look, the way Elon must do with Twitter. It could mean, yeah, there's a lot of fat to cut down here, and the business will still be just exactly the same. I'm not advocating for that. It's also possible they're investing in other growth stuff, but the idea here is the fact that they're not profitable yet is not necessarily indicative of them being structurally unprofitable. This episode is sponsored by our friends at WatchArts, a typical day in the life of a financial

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Join thousands of users who rely on Y charts by leveraging personal proposal reports to truly showcase your value ad. Click the link in the show notes to start your free Y charts trial and tell them I sent you, new customers only. So, I mean, that is an interesting because Twitter for years, people would say, and I think this is right, like you'd love to see, and Elon's kind of done that, like you'd love to see Twitter in a private equity model, right? Where it's like, hey, why are you guys investing all this R&D?

Like just cut everything, run it as the core product. The network is really powerful. Let's see how high you did these margins. I don't know if you're familiar, but he did cut 75% of the And Reddit would be kind of interesting. Like let's say they're going to do roughly a billion dollars in revenue this year. Their gross margins are off the charts as they should be because they've got, you know, the moderators are free. You know, I would imagine if you private equity style cut this to the bone, you could run this with 40, 50% EBITDA margins.

I don't think it would be crazy. Higher. Much higher. So I know people thought Twitter could get up to like 70% if you really cut. So let's just say 50, a billion revenue, 50% EBDA margins. That's 500 million in EBDA. We're buying this for about a four and a half, five billion EV, you know, six billion market cap, but a billion and a billion and a half of cash.

It's a 10x EBDA. Like that's a pretty interesting, that's a pretty interesting thing. Now, we've cut all of our, we've cut everything. We're probably going looking at much lower growth because we cut everything. I don't know, you know, bears might argue, hey, Twitter, you know, you know, you grow these things on the strength of the community, not the strength of R&D, but that is a pretty interesting thought. Do you want to say anything on that like private equity version of bird model? But continue, and that's very important in how tech stocks are valued on this idea

of long-term margins. Let me discuss valuation. We'll definitely get there. But, and I realize I've been saying a lot about like, oh, Reddit could be super profitable. But let's just talk about current financials. So there's kind of a direct kind of rebuttal to this idea that they're super unprofitable. Just look at their quarterly results that I have in front of me. We can see that, yes, they lost, was it $90 million of net income last year. But what the bears have not, don't appreciate enough is that if you look at the operating expense over the last couple quarters, ever since December of 2022, you got R&D flat, right? You got sales marketing flat. You got general administrative up a little bit, whatever.

So all while, you know, they're growing at 25% rate, you know, revenue growth is accelerating. This is very, this is the same kind of cost discipline we've seen across the entire tech sector. Every single tech stock in general have undergone this kind of cost discipline. Just run the numbers here. So like if presumably, I don't assume that once it come public, they're suddenly going to become spending on everything. But you just assume 5% operating expense growth. They're going to benefit from a recovery. in the macro in the ad market, they're within one year of, if they wanted to, one year of

gap profitability. So you got these bears saying that they're still not profitable, but actually they're very, very, very close to gap profitability, extremely close. So we'll go to evaluation one second, but I guess the other bear case I would make is, look, if you invested in meta or Google, like these were killer, killer socks, right? Meta's the end all be all for investing in a social network, right? But the tier two social networks, and here I'm thinking Twitter, Snapchat, maybe Pinterest, like, you know, I've got the Snapchat chart pulled up right now. And if you had sold at the top in 2021 when it was approaching 100, like you did pretty well. But aside from that, snaps at 10, right? That's way below its IPO price. Pinterest 33, kind of close to its IPO price.

IPOs were five or six years ago, right? Like outside of the major skilled players, investing in a social network hasn't done great, right? And I just want to ask, like, what is, and I think I'm not saying that the other guys are perfect comps, right? Twitter, Snapchat, Pinterest, nobody's out here saying like they didn't have strategic missteps and stuff, but that is three highly touted, highly visible social network issues that are comps, and all of them didn't work.

You know, Twitter kind of worked because Elon took it out private an approval, but if that was still public, I don't think anybody be happy with the share price now. So what is it about Reddit that like kind of separates them from those three kind of failed cases? Yes, and this is very, very important here. So, but before we answer this, let's think about meta, because I think at this point, even value investors like meta, which is kind of interesting. So let's talk about meta, though. I pose this question, what if meta was not making this much money? Okay, what is it we like specifically amount better? Is it like, are they making money because of their network or because advertisers are just

there? You know, like what if for some reason they were making half as much as they are now, are they really half as valuable as they are now with the current network in user base? I think the answer would be yes. I mean, maybe not half as value, but if they were making half as much money, right, with the current network, then you would have. serious questions about, this is the old Twitter thing. You'd have serious questions about the monetization potential. Twitter is an incredible product in terms of consumer surplus, but the

questions are monetization, right? It just does, it flat out does not monetize well. Whereas Facebook, like the beauty of Facebook, particularly Instagram, is it is the best monetization platform outside of maybe TikTok I've ever seen. Like, I almost prefer that ads on Instagram to the normal stuff I get on Instagram. Like, that's how targeted is. and that's how good the advertising platform is. Whereas Twitter, you're just growing through, I want to see my feed. I don't care about the random GM ad

that gets promoted in there. So if Facebook was making half, like I think I understand where you're going, but I would say like, hey, we'd have to have questions about management competence or it would be making half because the Instagram fit

just wasn't as good as I laid out. It's closer to Twitter. Does that make sense? Well, I mean, I could understand if we're just focusing on the multiples, yes, like if it makes half it'll be you might think it's worth half on our earnings basis but by my idea here is if we have this hindsight that you know it should be monetizable this is what

i'm saying like let's say there's mismanagement then you're talking about what if we went into a deep ad recession right like we're going into a depression and this we've seen advertising businesses arpoo go from two to one because hey you know this is the a familiar thing with uh networks, right? TV networks in 2024, presidential a year, they make tons of money because they've got presidential. I had 2025, they don't like, we can value through cycles and stuff. We can look through a recession. Now, the stock's probably going to go lower because we're in a recession and all the multiples go lower. But I hear what you're saying. It's just two different things. Like, we're kind of talking recession versus, hey, what if they just couldn't get everything going?

But what I'm saying is like Instagram, you get, let's say you went back in time. So you know that Instagram is dismonetizable, but it's not monetizable. But it's not. monetized yet. Let's say the management team, which is not great yet. It's not yet monetized. Would you invest in the stock when it had just 10% of the revenue? That is an interesting question. Because one of the first things for me as an investor that like kind of took me on evolution was back when Facebook bought Instagram for a billion and people made so much fun of Facebook. They were like 33 people, you know, Instagram had 33 people and zero revenue at the time. And people made fun. And I remember reading these. I was like,

these people are insane. Like, you know, my girlfriend at the time is plugged on to this thing 24-7. Like, okay, yeah, it makes no revenue. It's not like they're not going to put revenue up there, like put their engagement up against what Facebook's doing. And I had an inkling. I didn't know how good that would be. I had an inkling.

It would be a very monetizable site that they were crazy. So what you're kind of saying is what if something is pre-monetization? But if I apply that to Reddit, I would push back and be, hey, Instagram was a four-year-old company that was pre-monetization. Reddit is a 20-year-old company, and I believe they relaunched their ad server in 2018. So either they've been trying to monetize for 20 years or they've been like really trying to monetize for five. But we're talking about like kind of apples to oranges, what they are. Like, why aren't they what I'm still now, you know?

I think there, the mismanagement at Reddit is perhaps bigger than maybe at Instagram because like you said, maybe they're only four years. But let's say Instagram was around for 10 years and they were banished. And as you, as you mentioned, like when they were. bought, you know, everyone was on Instagram all the time. Would that really change your opinion about whether or not Instagram could be monetized? They're mismanaged, yes, but that instinct that you should be monetized. Are you arguing Reddit's mismanaged? No, it's just arguing there's very, very clearly mismanaged. It shows in the numbers. Let me look at like average revenue per user and everything like that. But yes, they're very clearly mismanaged.

Especially, the Tasey Life CEO is an investor in Reddit. And in his interview, Tom Stossop, right? In his interview, he mentions that coming public could actually help this management team and that it forces them to be better at monetization. But yeah, it's very clear that the Reddit team has not monetized nearly to the extent as a Facebook, Instagram. But kind of let's talk about here. Why did Snapchat, Pinterest, even on Twitter actually? We shouldn't ignore.

The Twitter softface would be much lower if they weren't taking out, but you almost get some incredible, right? Twitter is the example that really, that I think is really interesting versus Reddit. Now, I think Reddit's network is actually better than Twitter because you're building these deep communities. And Twitter, nobody cares about last week's tweet, but as I mentioned earlier, people care about last week's Reddit posts. But, you know, Twitter always, they had all this engagement. It was very difficult to supplant. You know, ESPN would come breaking news. Andrew Walker tweets, I'm signing with the Mets, you know, like they had all this attention

and they could just never figure out how to monetize it, right? Because ads really don't belong in the Twitter product is just really difficult. They've tried some, like, it's just, it's really tough. Reddit has a lot of similarities to me. You know, when I go on Reddit, if I'm looking at my Brandon Sanderson or my Marvel spoilers or whatever, like I want to read that. And then halfway through, there's like a post for Robin Hood will make sense on Wall Street bets, but, you know, halfway through there's a post for a movie,

me this week that I don't care about or there's brand advertising for some food. And like, it strikes me as not a great medium for advertising. I think that's, I think that's the big issue they run into. But I think that's more mismanagement. And let's just talk about maybe more higher level about Reddit social network versus Facebook, Snapchat, everything. So I think, and I think Pinterest is a good example because, especially by both men here. So Pinterest is very, very, very much love on Wall Street. It's got a nice, attractive 7X sales book full. But I think that's emblematic of this idea that Wall Street tends to focus so much on current profits. And I mean, Wall Street's forward-looking, but we're very addicted to profits. All-invest are very

addicted to profits. We see Pinterest making so much money and we're like, oh, this is a great high-quality social network. I even saw some bearish takes saying that Pinterest has higher engagement than Reddit. I think people who really use Reddit will kind of laugh at this idea. but this is, this is very, very typical of this idea of that, oh, because they're so profitable, they're going to be much higher quality network. I can't see to that, but it does strike me as Pinterest, like visual medium is easier to advertise than textual medium. So isn't there, isn't there something to Pinterest?

Like, I know people put it together. The classic is what people putting together wedding boards and stuff. That's visual medium. Isn't there something to just a visual medium can monetize better than a textual medium like Reddit? I'm sure to some extent. Um, but the, but Reddit does have pictures as well. Um, but so the, the key difference though with Reddit is I'm viewing it. So look, but one of the reasons why Instagram is so, so important is that it allows you to explore your interests, explore your passions, right?

It helps, helps you know what you love, right? And Twitter is very similar, except it's got this, it appeals to the low attention that we have. We don't want, maybe sometimes you don't want a whole picture. In one cell phone, on Instagram, you might get two posts, one post at most. But with Twitter, you might get like five, right, because you're text. Reddit is kind of like the best of both worlds, where you get a focus on your interests. But you got that text. Sometimes there's text. You've got the convenience where there's a lot of posts in one page. But it's got something different where, how do I put this?

So it's more organized, right? You don't, Twitter, Instagram, they're not organized. If you want to organize based on a guy like baseball cards, whenever you post a baseball card post on Instagram, you have to tag. You have to actually type in like a hashtag a tag. With Reddit, you don't hashtag anything. Everything is already organized there.

But here's the key idea here, right? So Apple and Google, they're going to be, they're moved toward this idea that you cannot track data outside of the app. And I mean, for me, I allow Facebook to track my data, because I was born into it. I like it. For the younger consumers, they don't know that it's so great for you to allow Facebook to track.

So in general, they're not allowing Facebook to track everything. So if you have this question, you're like, oh, I want some reviews on what's a good vacuum cleaner? You don't go on Instagram. How do you even ask that question on Instagram?

You don't. You go to Reddit, right? So that this is where it's very clear to me that there's some mismanagement. where Reddit has much, much more valuable data and much more valuable user-based experience. I mean, this is the old Google search thing, right? Like, the great thing is people have opted into, right? So your vacuum cleaner thing, you could imagine a Reddit slash vacuum cleaner board. And Dyson and Shark Ninja and all these guys should be just all over this in terms of advertisements, right?

Because that's where people who really want vacuum cleaners are going to go. I could imagine my Marvel board that I mentioned earlier, every time a new Marvel movie is coming out, it should just be overloaded with Marvel advertisements, buy movie theater advertisements, buy your tickets here. And to my knowledge, it's not. So that is great. As you said, in the post-ATC world, this is, it's about as short of somebody Googling how to buy life insurance on Google.

You know, this is about as good as you can get in terms of monetization opportunities. So that makes sense. Let me just quickly go to valuation, right? You mentioned Pinterest. I think Pinterest, Snapchat are the two comps that I've seen. you know, Pinterest is maybe five times revenue. Snapchat is at two and a half times revenue. I think, you know, Reddit, they're currently trading about a, correct me if I'm wrong,

on any of these numbers, about a $6 billion market cap, they should approach about a billion in revenue. So you're talking about six times revenue. We kind of laid out the private equity take up math. But like, how do you think about the valuation here? Yeah, yeah. And yeah, this might be a longer discussion because, again, I assume a live listener base don't really Value text loss all the time.

So, but just clarifying with Reddit, I'm using 200 million shares outstanding, which is probably going to be the higher mark for any financial firm. So I have it valued at around $8 billion. But even if I'm a good valuation here. Yeah, there is one. I think I was excluding. They've got like 20 million of RSUs and options that I was excluded. That's great.

Fine. Let's use $8 billion. That's fine. When I did, I just include everything. So first we talk, okay, that's first. talk about Snapchat Pinterest comparisons and then they'll talk about like tech sector valuations but okay so Snapchat that we have to understand yeah this is a kind of a very bearish take on Reddit they put into the social network and they're like oh it's not as

profitable as better so that's just not it's not going to be valid meta then what do we have that we have Snapchat and Pinterest and like okay we're getting a little bit over there it's not clear if it's better so it's overvalued relative to Snapchat Pinterest but there's very important distinctions here again and it all comes down to TikTok and then also, and Pinterest is not really a TikTok, but Pinterest has some specific issues. But that's not about TikTok. TikTok has affected meta and Snapchat very differently. This is important to understand. TikTok is a literal, okay, I don't use TikTok, I don't use Snapchat, but from my view, my home opinion, it's a literal Snapchat copycat

where it's better than Snapchat. They overab completely, all right? There is no reason for Snapchat to exist as TikTok keeps going bigger and bigger. And Facebook does still also face TikTok threats. And then when we talk about Pinterest, Pinterest, Pinterest again, I view it. It's being monetized. Advertisers recognize that people that are very highly engaged, they really want to buy something.

So they have done an excellent job. This is a case where you have an average business with an exemplary management team that has come to monetize this. They got Amazon in with third party ads. I mean, if you told me 10 years ago, Pinterest would be making so much money, it will be gap profitable. I would be like, I'm not sure.

But this is clearly a case where he got like an average baseball player. You slap him with, you give him a ton of a great team, a great everything, great nutrition plan, and then he becomes the best he could be. That's what Pinterest is, okay? But Redder's Reddit fan to this. Reddit does not face TikTok threats.

This is very, very important distinction. In my opinion, It should be worth more than meta, but it's not going to because, again, investors really care about profits. They're in a spanish, but. But did you say you think Reddit should be worth more than meta? Yes, we'll get there. I realize, um, like, I'm not going to be laughing, but no, on a multiple basis.

That's not, but I'm not saying it should be worth trillion on a multiple basis. Okay, on a multiple basis. This is, um, and, but let's first talk about how to value a tech stock, uh, before we just start talking about prices sales, it gets a little weird. Okay, so we talked earlier about this idea of long-term margins. You call it private equity, but it's not really necessary. When private equity comes to a tech firm, the margins are going to be even higher than what I'm targeting.

But let's take Microsoft, for example. Microsoft is a really good example of why. And this is in general, at least in my view, how techs are being valued. Okay, so you got on Microsoft. They're generating around like a 35% profit margin. Net, net gap, net margin, okay? So they trade at 13 times sales. And it's kind of interesting.

So these names are all very institutional backed. You just accept this, right? Microsoft 13 times sales, 35 times earnings. But you get this idea that there's 13 times sales multiple. It's just accepted because they're at 35 times earnings. All right. But Microsoft is not going to have as much, margin potential in terms of expansion as a company like Reddit or a smaller name.

The idea here is, in my humble opinion, these tech companies, especially the ones with long-term secular growth, they're all approaching that number, okay? Maybe they're not 40%, but remember, Facebook is at 52% operating the margin for their advertising business. And let's talk about Reddit. As you mentioned, we're like, why are they spending R&D on? okay this is this is important correct i completely agree this is a forum it it does not take that much money to do you we don't know what they're spending it on but we could pretty easily say they do

not need to spend this much money on operating expenses to just run this business they're doing something else who knows who the heck knows uh longer term it's reasonable to expect redit should be a more profitable business in terms of margin than a facebook instagram just because it's much easier to sustain however we're not we're not going to assume that. But I'm just saying, I'm just pointing this out. Like, it's not a crazy assumption to assume that this, this platform, which is much easier to maintain, should be a higher margin business. But I am, I model around 35% margin, long-term assumption for Reddit. Okay, that's, that's what I use. But it probably will be more like 55. It probably will be even higher,

but I'm going to be crucified if we actually go down route right now. I don't, again, I don't disagree that you could get this to crazy margins in the long term, right? Like, I look at this, and I say very similar to our Elon Musk discussion, we could cut a ton of that out here and have this. And I do think there is something to a community-based, text-based. We've talked about the network. I'm completely with you on all of those points. 35% margins, 40% margins in the long run.

I guess my pushback here, I can see where you're going. My pushback here would be, okay, Reddit right now. it's 20 years old, right? We haven't gotten there yet. We're growing about 20%. And you use Microsoft, right? Microsoft is growing 15% annualized right now. So Reddit is growing slightly faster,

but Microsoft's net income margins are 35% right now. And Reddit is, I mean, maybe they'd get there in three years of private equity, took them over, given that they're a controlled company and they just went public, I can guarantee you they're not getting there in three years. So when we start throwing these, multiples around. I say, hey, we're talking like 10 years out in the future long-term margin

rates. They're going to burn cash to get there. And I'm just like, I don't know. The valuation here is pretty big. Well, hold on. So around the burn cash point, no, I don't think they're going to burn much cash to get it. First of all, they have $1.5 billion to cash, even if you just take Gap, okay, and they don't have CAPX requirements like META. This is important. So even if we take Gap, right, they did 90 million of losses last year. But this is going to narrow. This is going to narrow really fast. I see them being gap profitable if they wanted to within a year.

Okay. But probably they're going to take their time and it will be two to three years. And they're not going to earn cash. But I understand this idea that, yes, Microsoft is currently profitable. Absolutely. And they're generating similar growth rate. We'll talk about the growth rates. Yeah.

So that's why they're out of multiple now, okay, where they're 13. But for this in this pool thesis, all right. Reddit is going to, and again, there's a lot of assumptions, there's always these assumptions. We're assuming Reddit gets to, let's say, 35% margin, okay, long term. In this world, they're 35% margin, they are going to be an established social media platform. So they're going to be, they're going to be like better. They're not going to be risky anymore. They're going to be trading maybe 25, 30 times earnings.

That gets you to 10 times sales, all right. So you get this idea that at some point in the future, when they are at 35% net margin, could we agree that maybe they'll be around 10 times sales, if not more, because remember, they might have a higher profit margin and Microsoft is at 13 times sales. If we assume that they're around 10 times sales, what happens from here to there, right? And we need to talk about the growth rate,

but if we're assuming this 20%, and I realize we need to talk about that growth rate, but I'm seeing 20% growth for a very long time. You see them, they're currently at 8 times, sales they're lower than that 10 times sales long term multiple okay so as so eight times we'll go to 10 times long term and then they're also growing at a 20% rate from here to there you're seeing a name that will compound that 20 like in terms of shareholder returns compound that 20 every year over long term look I see the thread that you're trying to do I guess just

I look at it and say I think they can do 20% revenue growth right like I think there's a big community out there and they're just starting to do this. I think there's a lot of untapped upside on the monetization potential. But just getting to that, you know, it takes a long time of 20% EBITDA growth to scale into their. Oh, careful. Okay. Okay. Wait, one, to be to be clear. Sorry. I'm not saying 20% EBIT of growth, 20% revenue growth. And we're talking about scale. No, it's, so I do encourage afterward to check out some tech companies to see what they did. Check out sales, even Salesforce. Um, they weren't even the most. Check out how. much their margin expansion was in just a year's time. No, it's not like, so I guess I certainly

understand that these guys can can cost cut. I'm not saying cost cut. I'm not saying cost cutting. So that's, that's good care. I'm not saying cost cutting here. I'm saying operating leverage. So I'm saying what we're going to see here is operating expenses grow minimally, very slowly. When you have a situation where operating expenses are not really, this is, and this is really what Facebook did cut. But the big portion of why margins grew, was because they just, if you just leave our expense, it's flat while you grow revenue on the

margins expand very, very, very rapidly, especially when your gross margins are like 90%. This episode is sponsored by our friends at Y-charts. A typical day in the life of a financial advisor calls for back-to-back client meetings, juggling portfolio management, and the consistent desire to improve client relationships. Y-charts report

and proposal tools could be the missing piece to help you effectively handle these time-consuming tasks. Now more than ever, clients want to hear from their advisors. And with user-friendly templates at your disposal, generating impactful client reports can be easily integrated into your everyday routine, helping you free up time and focus on what matters, enhancing client interactions and growing AUM. Join thousands of users who rely on Y charts by leveraging personal proposal reports to truly showcase your value ad. Click the link in the show notes to start your free Y-charts trial

and tell them I send you, new customers only. Let me ask So a big piece of this is 20% revenue growth for a long time, right? They've done, they did 20% in 2023. They did 20% in 2024. Yeah. I guess the push-pull is, that's quarter. Yeah.

The push pull is this is a 20-year-old company, right? Again, I think there's under monetization here, but most companies don't see accelerating revenue. Most companies, as they kind of go from 800 million this year, about a billion will be the 2024 number, you start to like tamper down unless you're like launching new products. So why is a 20% for five years, eight years, whatever it is. Why is that the right number? Yeah. So let's talk about growth. And this is really going to be drilling down to like why it's just so poorly managed. Right. This is a network. And this is again why I talked about the Instagram. What if they were not monetized yet, right?

They're just going to ramp up really rapidly. So here we have Reddit. It had 267 weekly average users. But half of that was the United States, 131. United States users. And I note that Facebook has 272 million U.S. in Canada, they're already had half of Facebook. But the average revenue producer for their U.S. user space was $5.55, $5.51 cents in the latest quarter. That's, it's, it's, it's incredibly low, right? You get Snapchat at $9.

Pinterest at $8, Facebook at $68, just, just this eyeball thing. You look at Reddit, it does not make sense for Reddit to be less, to be like half of Snapchat monetization long term. Why doesn't it? My understanding is Snapchat has bigger engagement, right? And if I said I was at a billion users, and you read a billion users, but my users were doing a minute and your users were on there for two hours, obviously you'd have better monetization, right? So my understanding is Snapchat. I think it's like the average session, it's like 28 minutes per a Reddit user versus like 45 minutes for Snapchat user, if I remember that correctly.

So it depends on which website you use. But this is surprising. Reddit engagement is very strong. So Snapchat's 30 minutes. registered 24 minutes. Facebook, Instagram, or 30, 33 minutes. It's very, very close to Instagram, Facebook. I guess my question would be, so Snapchat, let's just use those numbers. Snapchat is 20% more engagement per user, right? So that would be, you just said 30 and 24, right? Yeah, 30% more. So that would be about, that would be about 20% more Arpoo, just from the

engagement difference, would be my expectation. Now, we haven't talked demographic differences and everything with something. But then the other thing is, as I mentioned earlier, Reddit is a text-based advertising company, whereas Snapchat is video. And I would just imagine that Snapchat video is much more suited to both brand advertising and higher monetization. You know, like a YouTube video gets more CPM than a Spotify video. And part of that is they have better data and everything. But a big part of that is also YouTube is video and Spotify. Sorry, not Spotify video, Spotify is audio.

Video gets more than audio gets more than text, is my understanding. So historically, Reddit has not made enough, right? And they historically are a text-based advertisement. But over time, I don't see any reason why they shouldn't be having this Instagram Facebook model in terms of advertising. Because remember the idea is their data is much, much more valuable in terms from an advertiser point of view than a Facebook, Instagram. Reddit, like in a post-A-T-T world, no, the younger people using Facebook, Instagram, you kind of know what they want, but not really.

With Reddit, you know exactly everything they want, right? They're joined everything. They're searching specifically for what they want. They're going to search for baby clothes reviews on Reddit, not Instagram or Facebook. Baby closed reviews, I do understand that. But one of the nice things about, again, I hate to bring it back to Instagram, not all of Facebook, but Instagram, when I look, like, it knows, hey, Andrew is really, I mean, the advertisements are just very good.

They, you say they don't have specific data. I will tell you, like, I almost buy everything that pops up. I'll go grep. They got me with instant overnight oats, which I really like. Like, they're really effing good. I can't think of any place that's got me to buy more off advertisements than Insta. I forgot, I forgot to mention, yes. And I agree.

I buy a lot of stuff from Facebook, Instagram. I am embarrassed to say myself. However, let me ask you, um, you, um, did you allow Facebook Instagram to track your activity outside your apps before or even now? I don't think I do. But about before. Before ATT? Probably, probably, right?

It's the default. So they have that data on you already. This is important. They already have that data on you already. But with the newer generations, they won't. The newer generation from an out-generating perspective, it's not going to be like you, where they kind of know what you've already searched for before.

And I hear you. I don't know. You know, because they do have. have the data on just what you watch, and the data on what you watch, especially on something like Instagram, it's pretty powerful. Let me, I'm going to have to wrap this up in a second. I guess you mentioned a lot of bear points here. What do you think the biggest misperception, the biggest variant view between your bullish thesis on Reddit versus the average person that has kind of reached out to you on Reddit, the average wall, I don't think tons of

Wall Street covers right yet, but the average, what do you think the biggest misperception is? Well, definitely, there's many. Unfortunately, I guess you say running out. time. But as you mentioned, the 20%, this idea that, okay, they're only at 20% right now. So it should decelerate. In general, I will agree with this argument that numbers should decelerate over time. It's very hard for them to accelerate. But the idea here is, um, that the idea here is that they look to be extremely under monetized. You used, you used to Reddit platform, the advertisers are very weird. They're extremely weird. You're like, why are they here? Why is it this one? And, you know, they're not,

there's not enough, no good advertising there. But isn't that speaking to issues with the platform? Like I look at Twitter, right? The Twitter, particularly posts Elon, the advertisements are bonkers, like literally bonkers. I'm getting advertisements for, it's a lot of politics ad, but, you know, getting advertisements for a lot of, you and I talked about them before, adult content that, you know, I'm fine with adult content, but it's adult content that certainly wouldn't be suitable for me.

And, you know, it probably wouldn't be suitable for 95% of the population. Like, the issue with Twitter is a lot of the, now there were. platforms issue and everything, but advertisers just don't want to be there anymore. Reddit, like they do have some issues where it can get kind of toxic on Reddit. It's not 14, but it can get kind of toxic. So you've got brand standard issues. And then a lot of it is just like, look, again, it's a 20 year old platform. If you're saying, hey, the advertisers on there are weird, I'd kind of say, hey, they've had 20 years to get there. And a lot of the brands, like they either don't see their return or they just don't want to be associated with some of the

Reddit content. I mean, it's always possible. And that's definitely going to be the risk. But I'm not, I'm not viewing that as a platform issue, but more just historically management has not executed kind of issue. That's how I'm doing it. And I'm viewing it as Reddit should be probably doing an ARPU already at part. Right now, if you had a Facebook team at Facebook at Reddit, I wouldn't be surprised that they should be already at $20 for the U.S. Okay. Or if not higher, they should. What's an example of a social network that does around $20 in ARPU?

Well, there's, unfortunately, there's just. Facebook, Snapchat, Pinterest. So there's not going to be many that. No, that's fine. I was just wondering if there was, I'm trying to just like baseline it against something else that does, you know, $20 in ARPOS. Because we've got to remember a lot of the Facebook ARPOO is also coming from pricing. It's not necessarily just putting more ads.

They're also able to charge more for the ads because they've proven, you know, the ROI is there. Okay. There's a lot there's a lot there that is on the execution. But that's not platform. That's management. And that's what I'm saying with Pinterest. Well, you say it's a platform, but the,

This comes back to my, hey, like Instagram gets me to buy stuff, right? A lot other advertisers don't like the pricing is because they can go to people and say, you know, I look at several other tech stocks with advertising and advertisers questions the returns, right? They question the returns. They question the spend. Just think about TV advertisements. Every time there's always someone takes over and they say, oh, I don't know if I want to do TV advertisements. I don't see the return.

Instagram, it's literally like they have pricing because they say, hey, I show this ad's 10 people. Four people click, two people buy. We can show you the data. Like, we're going to charge you 20 bucks for this ad because you get 400 revenue. You know, like that, I don't know. This is really fascinating. Go ahead.

Last thing. No, but my point here is like, but is the way one uses Reddit versus the one uses Instagram, okay? They're very similar if not, and I could argue people, there's definitely people who use Reddit way more engaged than, you know, Instagram, Facebook. The fact that Facebook, Instagram, have. that higher ROA on an ad is not necessarily due to platform in that case. It's more due to the management and that they have done a better job monetizing would be my view.

So I'm expecting. I asked you what your most, your most differentiated view was. And I would just say based on, I am obviously no expert on the company, but based on my read of other people, I think your most differentiated view is how mismanaged Reddit is. Because I think most people are pretty,

think the management team has done a pretty good job here. And, you know, I saw some people saying the CEO owns what, like 25% of the stock now or something. He owns a lot. No, no, he does not. He does not. I think it's like RSU or something, right? No, it's not even, it's, it's very minimal because he had sold the company for 10 million and then he came back. So he's not a typical founder CEO. He owns very tiny amount. There's some private equity. We hadn't got to it, But a lot of private equity own a big stake in it. You got advanced magazine publishing owns, what's it, like 40% of the company. And then, I mean, again, I'm just pointing out,

but they do not sell in the IPO is something very curious. All these companies are very highly concentrated positions in the company. They do not sell anything in the IPO. It's kind of interesting. A quick disclaimer, nothing on this podcast should be considered investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.