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I was planning to write about Reddit earlier this week but held back due to the pending announcement on tariffs. The best way to express my views is by how I reacted on BlueSky.
Donald Hoover Trump.
Donald Hoover Trump is about to learn a lesson. All currencies will depreciate in line with the amount of tariffs, negating any impact on the exporting country. However, the US consumer and importing companies will be left holding the bag. Do you have gold in your portfolio?
Now my old followers and subscribers of my blog appreciate why I was blabbering about the Smoot-Hawley Tariff Act for months. ….
First Stagflation, then depression.
Those who forget history are doomed to repeat it. All countries would have agreed to a bilateral trade agreement. You don't use a machete when a scalpel is required.
Personally, my gold holdings are doing well. Thank you, Donald Hoover Trump.
I agree to a certain extent that some countries have been abusing customs duties to protect their domestic companies; however, if somebody is negotiating, you don’t hit them with tariffs while the negotiations are ongoing. I don’t have insider info on this, but if I were India, I would walk away from the ongoing negotiations. The way Trump has behaved is not how gentlemen behave. Essentially, one can’t be sure that even if there is an agreement between trade representatives, Trump would sign off on it, or he might back off or levy further demands at a later date.
Trump's actions are not the act of a friend.
In short, this is not good. Let’s see how it plays out. Personally, I am enjoying the runup in gold and WPM. One would imagine that the uncertainty is over, but it is not. This will drag on for a while till the supply chains get reconfigured. Also, it is all but certain that retaliatory tariffs are coming.
My bigger concern is that all this might end up like JCPOA. Trump cancelled the JCPOA and wanted to negotiate with Iran; it all fell through. Now, we have to deal with the consequences. To appreciate the mood across the world, here is an important quote from Iran.
... it is their (US) unfaithfulness that has caused problems for us so far. They must prove that they can establish trust regarding decisions ...
I have very little experience with social media as I stayed away when I was consulting, on boards, or working at Guardian Life Insurance. However, I consider it a positive as I am looking at the ecosystem with a fresh pair of eyes.
I have had my trials and turbulations while using social media. I used to interact with people and made some great friends along the way. Unfortunately, the experience has also diminished my positivity towards humanity. Unfortunate indeed, but hiding from the truth does no one any good.
On the microblogging side of things, I think BlueSky will overrun X. While I may be right of center and cringe at some of the stuff on BlueSky, I find it much more welcoming and well-behaved.
I deleted Facebook within 10 minutes. LinkedIn seemed professional and welcoming, but I was shocked by some of their policies. Here is what happened.
I wrote a post analyzing Elon Musk’s recent actions and their impact on Tesla. As part of the post I highlighted the supposed “Nazi Salute”. LinkedIn flagged it as a violation of their TOS and temporarily banned me. I showed the post to my golf partners, and they couldn’t figure out what I did wrong. The general consensus was that LinkedIn and by association Microsoft supports Nazis. I sold all my Microsoft shares I held for over two decades and blacklisted Microsoft at all my companies. Based on the messages I am getting from my broader circle, I wouldn’t be surprised if Microsoft misses earnings for Q2.
The bigger problem for Microsoft now is that I am looking. When I look, I generally end up unearthing all the hidden skeletons. Let’s see what I find.
All that said, in the age of AI, human-written content will become more valuable. Like this blog, it is very easy to decipher that there is no AI involved in the articles I write. AI can’t write the way I do. Similarly, the content on Reddit is very valuable; it is helpful, and the content is moderated. It is a proverbial gold mine.
Reddit had a stellar IPO. It was priced at 34 and ended the day 48% up at 50.44. Subsequently, it went on a blistering run to 229 after it turned profitable in Q3.
Is there a name for a chart pattern like that? The first thing that comes to mind is Mt. Everest. Be that as it may, could an investor have foreseen that Reddit would turn profitable on a GAAP basis in Q3? Yes. Based on the commentary during the Q1 and Q2 earnings calls, all the hints and signals were there.
First, let’s look at the quarterly income statement highlights.
RDDT - Quarterly Income Statement Highlights
What stands out here are the expenses in Q1 2024. There is a very good explanation for that. From the Q1 earnings call:
That said, we did have a GAAP net loss of $575 million in Q1, driven by stock-based compensation and related taxes from the IPO. Stock-based compensation, including related taxes for the quarter, was $595 million, up from $13 million a year ago, driven primarily by one-time expenses related to the vesting of restricted stock units in connection with our initial public offering.
Hence, that was a one-off, and one could very well assume that SBC wouldn’t be at that run rate going forward. That in itself and the requirement of not having to spend more incrementally would have been the hint that Reddit was headed towards profitability, given its growth profile. However, what is the long-term plan on stock-based compensation? From the Q3 earnings call:
Relatedly, the total number of fully diluted shares outstanding in Q3 was 206 million, up 0.7% sequentially to 1.3% for the year, excluding the IPO. We're pacing well against our medium-term goal of 2% to 3% dilution for the year.
With a 92.6% gross margin, ~22% sequential revenue growth, and a steady cost structure, what is there not to like? In Reddit’s case, using the adjusted EBITDA metric makes sense for FY2024. Now, what if we backed out the SBC from the income statement? How would net income look like for Reddit?
As tax expenses are immaterial due to tax loss carry forwards, if there were no SBC, the SBC of 801.6 million would flow straight to net income. Hence:
Adjusted Net Income = 801.6 - 485.2 = 316.4 million
It doesn’t look so bad now, does it? There is no growth slowdown expected in the medium term as Reddit continues to add thousands of advertisers every quarter. All the topline will flow straight to the bottom line going forward.
Growth Drivers
Search Box
Most of Reddit’s non-loggedin traffic comes from Google search. This symbiotic relationship with Google is a double-edged sword as Reddit is at the mercy of Google’s search algo changes. Google changes its algo at least two times a year; sometimes it gives Reddit a boost, and sometimes it hurts them. Reddit is pretty clear that they neither celebrate a positive impact of Google’s algo change nor do they get dismayed by a negative impact.
One of the things that Reddit is improving is its internal search capabilities. This is aimed at better user retention and enhancing its ability to showcase more relevant content. Over the last few quarters, there has been positive user feedback and an increase in usage due to a better search experience within Reddit.
Homepage Curation
Reddit is enhancing its homepage to show content based on user preferences rather than a generic list of subreddits. The goal here is to enhance user experience and enable users to find content they would like to see and increase engagement. This would lead to more time spent on the app and, hence, an increase in ad revenue.
New Ad Placements
Till now, Reddit was not showing any ads in the conversations portion. In Q3, Reddit started offering ad slots in the conversation section, and that is now ramping up pretty well as advertisers get more comfortable with it. This would be a major driver of ad revenue growth, along with the thousands of advertisers being onboarded every quarter.
International Expansion
Reddit is 50/50 US versus non-US, whereas its competitors are 80% to 90% international. This provides Reddit a huge opportunity to grow. To grow its international business, Reddit started by machine-translating its content to French, which led to a 44% growth in France. Now, it is translating its content into other languages and hopes to grow further across other geographies and countries.
Brand Pages
In Q3 2024, the White House joined Reddit and now has a dedicated page. Six sports leagues across the world have also joined Reddit. As more and more brands get comfortable with the Reddit format, a pickup in companies joining Reddit and having a dedicated page to interact with customers and the broader audience should accelerate.
Even at The Orca Fin, I am contemplating a presence on Reddit. The audience is helpful and well-behaved, and Reddit has moderation functionality. It looks very appealing, and having a dedicated page to interact with customers is enticing.
Content Licensing
While r/WallStreetBets content licensing is common knowledge among stock market participants, many AI players have also entered into content licensing agreements with Reddit. This has provided a major boost to Reddit’s revenue growth in 2024.
The thing I like about Reddit’s content licensing deals is its philosophy around how the user data is used by AI players. From Q1 2024 earnings call:
There's interest in Reddit data for insights that lead to business decision-making, marketing decision-making. It is a new market that I think has potential to grow over time.
User privacy is very important to us, and that's, very important in how we craft these partnerships and consider partnerships, making sure that users, when they have edits and deletions are respected is very important to us.
I'd say partners where we're non-competitive and where we can grow together, it's not always the case. So, we just want to be sure that the partners are right fit even over the midterm. So, those are the things that I think we've learned. And then, I'd say the AI partnerships that, we're sort of more selective given all of those pieces.
Also:
This has really been accretive to our business that the cost of preparing the data is probably a little less than we thought it would be and really flows through quite well and the P&L is one of the keys to success that you see in our first quarter numbers.
Note
I really like the CFO. Focused on P&L and cash flow. A no-nonsense guy and knows the business. If you pay attention to what he is saying on the earnings calls, you can pretty much forecast what is coming.
Ask Me Anything Sessions
This is a cool new addition to Reddit where brands and celebrities host “Ask Me Anything” sessions. This feature drives user engagement and, thus, ad revenues. Amazing feature.
Reddit even takes questions before earnings calls and addresses a few of them on the calls and also on Reddit. Pretty awesome. I must say, I have a new-found respect for Steven Huffman - Reddit Inc.; Co-Founder and Chief Executive Officer.
However, Steven did lose some of it when I learned that Elon Musk called him to take down some posts critical of DOGE, and Steven took them down. That is not cool.
Operating Leverage
This is pretty self-explanatory. No commentary is required. From the Q3 2024 earnings call:
On the people side, we're adding people in channels and countries, easy to take a look at. We're opening up a couple of new markets, easy to take a look at that, run a country P&L. So a simple example would also be the sports deals we talked about last quarter. That was an investment Jen and I made maybe 6 months ago. Small investment, put a team on the ground and you're able to tangibly produce meaningful licenses with some of the leagues in the world.
…
Again, we're just in a place where the investments are measurable. They're short term and you can really see the payback. So really, the questions we have are really about, can the organization handle it and can we execute. It really isn't a difficult ROI decision because right now, the returns are very, very strong, as you know, with the high gross margin pull-through.
User Growth and ARPU
Again, the following is self-explanatory. Should I repeat, I love this management team. From the Q4 2024 earnings call:
We haven’t come, I think close to tapping out in the U.S., which is our most mature market.
We’re really getting off the ground in a number of countries around the world. Communities are universal, and so we see very high potential in building a product that is literally universal -- everybody belongs to communities, everybody wants that feeling of belonging. Everybody has questions.
Everybody is going through life’s journey, and those things are all on Reddit. The way we get there is the things we’ve talked about, performance, quality, some of these new products like search actually kind of touches on both of those things.
On ARPU:
So as we’ve mentioned before, we don’t manage to ARPU. There’s nobody who managed it to what it is. It is just the revenue divided by the users. It did grow in Q4 nicely in both regions, the U.S. and rest of world.
There’s a lot of headroom there.
…
But the way we think about it is we’re trying to grow revenue by continuing to expand our verticals, drive performance, make our ad platform easier so that we have more advertisers on it, driving more demand into our platform. That grows our share as we continue to also grow users in parallel.
…
The ARPU for the rest of world is just a fraction of the U.S. So there’s a lot of opportunity for growth there.
Cryptocurrency
I found this interesting note on cryptocurrencies in the 2024 10K. Don’t show this to any crypto bros; their collective heads will explode. If you do, run straight to your bunker.
We account for cryptocurrency investments and cryptocurrency received in exchange for goods and services as intangible assets with indefinite useful lives, which are measured at cost, net of any impairment losses incurred since acquisition, on the consolidated balance sheets.
…
During the year ended December 31, 2024, we sold the majority of our cryptocurrency portfolio, which consisted primarily of Bitcoin and Ether. The net carrying value of our cryptocurrencies and all related cryptocurrency activity, including the gain recognized on sale, was immaterial for the periods presented.
Source: Reddit’s 2024 10K PDF page 82
Outlook
I think Reddit is laying the base for greater heights and will become one of the largest social media properties. As said earlier, the content is just a proverbial gold mine. Maybe this is my personal view, but I think Reddit will be a trillion-dollar company in ten years or so. Currently, Reddit’s market cap is 19.81 billion.
The recent correction in Reddit, along with the market and all the hyped, overvalued stonks, presents a great opportunity. No valuation exercise is required. Buy the dips and accumulate. The holding period is 10+ years. This is better than pure gold.
TSCO
Apparently, I am in LinkedIn’s dog house again for posting the email I sent to the board of TSCO on March 14. Seems like somebody complained. Snowflakes. Ponder upon this:
Abusers, trolls, corporations, and generally, people with bad character, get away with a lot. When the abused retaliate, society focuses on the retaliation and, in many cases, punishes the abused. This impacts women, minorities, and peaceful people. It is as if we stopped evolving intellectually.
I never had people misbehave with me in person. I don’t know; it may have something to do with my physical attributes. 6’2”, 200 pounds, all muscle, not an inch of fat. When they find out that I have a blackbelt in Taekwondo, people are even nicer, and then there is my unconventional intelligence and family background. As I said, I don’t know what it is. I am just guessing.
That aside, TSCO is legally required to address my email. I haven’t heard back from them yet. The board meets on April 20. Earnings for Q1 are supposed to be released on April 23. Let’s see what the board does. If TSCO’s board doesn’t address what I have highlighted on April 23, I will approach the SEC. Here is the email for your reference.
Email Sent to the Board of TSCO on March 14, 2025.
This tech company grew 32,481%...
No, it's not Nvidia... It's Mode Mobile, 2023’s fastest-growing software company according to Deloitte.
Just as Uber turned vehicles into income-generating assets, Mode is turning smartphones into an easy passive income source, already helping 45M+ users earn $325M+ through simple, everyday use.
They’ve just been granted their stock ticker by the Nasdaq, and you can still invest in their pre-IPO offering at just $0.30/share — before their share price change on May 1st.
*An intent to IPO is no guarantee that an actual IPO will occur. Please read the offering circular and related risks at invest.modemobile.com.
*The Deloitte rankings are based on submitted applications and public company database research.