Should you buy Reddit (RDDT) stock in 2026?
2026-07-10 · By Lubin Danilo, founder of Lubin Investment
RDDT: see the full analysis on Lubin Investment
Reddit ticks almost every quality box in my filter: solid margins, fast growth, next to no debt. But the stock already trades far above its sector's median valuation, and dilution from stock based pay remains heavy. A company in excellent shape, at a price that leaves little room for error. Here is how I read it.
Reddit, much more than a forum
Reddit has run for twenty years on a simple idea: thousands of communities, called subreddits, where enthusiasts discuss everything from home repair to finance to video games. What changed recently is that this mass of human conversation became a sought after raw material: the kind used to train artificial intelligence.
A business running on two engines
The first engine is classic: advertising, roughly 95% of revenue. In 2025 Reddit topped 2.2 billion dollars in revenue, up 69% year over year, and posted its first ever positive annual accounting profit, 530 million dollars. The second engine is newer: data licensing deals with Google, around 60 million dollars a year, and OpenAI, around 70 million, already close to 10% of revenue and potentially exceeding 400 million dollars a year by 2027 according to several estimates. Reddit is reportedly negotiating pricing that scales with how much AI companies actually use its data, rather than a fixed fee.
Quality that impresses on almost every criterion
My filter gives Reddit a 9 out of 10 quality score. Its net margin reaches 28.6%, its free cash flow margin 21.9%, and sales have grown 59.6% a year on average over 5 years, a pace very few companies in my universe sustain that long. Return on invested capital comes in at 29.3%, and net debt is negative: Reddit holds more cash than debt.
Why do two criteria still raise a flag?
Shares outstanding have climbed 64.4% a year over the past five years, one of only two criteria that fails in my filter. Much of it comes from the IPO itself and stock based pay to employees, common for a young tech company, but it mechanically dilutes every existing shareholder: your slice of the pie shrinks even as the pie grows. Another point worth watching: only 77% of accounting profit actually converts into cash, my bar is 100%, a gap largely explained by the weight of that same stock based pay in the accounts.
The price: where it hurts
Reddit trades at 72.9 times its free cash flow. In its sector, internet content and information, the same family as Yelp or Pinterest, the median sits at 17.7 times: Reddit costs more than 4 times the median company in its sector, and ranks among the priciest 17% of my entire universe.
| Stock | Valuation (P/FCF) |
|---|---|
| Reddit (RDDT) | 72.9x |
| Sector median | 17.7x |
| Sector average (skewed by a few giants) | 46.5x |
My model computes a reasonable buy price of 99.44 dollars. The stock trades around 195 dollars, almost double. In other words, even if you believe the growth story, there is currently no margin of safety at this price. The market has already prepaid a good chunk of the growth still to come.
Reddit's real moat: an irreplaceable human archive
What protects Reddit is not a patented technology, it is an accumulation: twenty years of authentic human conversation, organized by topic, with a voting system that naturally surfaces useful answers. No generative AI can recreate that archive overnight, which gives Reddit real bargaining power with Google or OpenAI. That is a rare moat: an edge that grows with time rather than eroding.
How I decide
Reddit is one of the highest scoring companies I have analyzed this year on pure quality: fast growth, solid margins, an unusual moat built on human data. But quality and price are two separate questions, and on price I have no doubt: at the current level there is no room left for error. A great business can still be a bad investment if it costs too much. That is exactly why, to avoid confusing the two, I built <a href="/analyse/RDDT">my full page on Reddit</a>, which applies <a href="/blog/qualite-et-valorisation-methode-lubin-deux-etapes">my two step method</a> to any stock in <a href="/screener">my screener</a>.
- Reddit scores 9 out of 10 quality criteria: 28.6% net margin, 59.6% a year sales growth, next to no debt.
- Two revenue engines: advertising, 95% of revenue, and AI data licensing deals with Google and OpenAI that could exceed 400 million dollars a year by 2027.
- Two watch points: 64.4% a year dilution of share count, and only 77% of accounting profit converting into real cash.
- The stock trades at 72.9 times its free cash flow, versus 17.7 times for its sector median: no margin of safety at the current price.
- An excellent quality business, but a price that leaves no room for error if growth slows.
FAQ
Why is Reddit so expensive versus its sector?
The market is betting on continued fast ad growth and rising AI data licensing deals. That bet is already largely priced into the current stock price.
Is share dilution a problem?
A 64.4% a year rise in shares outstanding dilutes every existing shareholder. It is partly normal for a recently listed company, but it is not trivial and deserves watching year after year.
What are AI data licensing deals?
Contracts under which Reddit lets companies like Google or OpenAI use its content to train their AI models, in exchange for annual payments that could exceed 400 million dollars by 2027.
Should you buy Reddit now?
The company's quality is real, but at the current price my model leaves no margin of safety. This is not investment advice: do your own research and set your own entry price.
RDDT: see the full analysis on Lubin Investment
About the author
Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).