Reddit Selloff Reveals Tension Between Strong Financials and Unresolved Growth Risks

What happened

Seeking Alpha published a bullish article on Reddit after a 20% stock pullback, emphasizing robust Q4 2025 fundamentals with 70% revenue growth, 42% ARPU increase, and 45% EBITDA margins. However, the DeepValue master report maintains a 'WAIT' rating, highlighting critical risks such as slowing U.S. logged-in daily active user growth and AI search disintermediation threats. The article frames AI as an opportunity via data licensing and ad optimization, but the report cautions that AI could reduce traffic from logged-out users, undermining inventory quality. Key concerns from filings include an auditor's critical audit matter on ad delivery measurement and plans to phase out logged-in vs. logged-out reporting, which may obscure growth drivers. Thus, the selloff reflects market skepticism about sustainability despite impressive near-term financial performance.

Implication

The selloff has made Reddit cheaper, but valuation alone is insufficient without addressing core risks like decelerating U.S. logged-in DAUq growth and AI-driven traffic shifts. AI presents a dual narrative—offering revenue from data licensing while threatening referral traffic—requiring careful monitoring of on-platform search adoption. The auditor's critical audit matter on ad delivery adds uncertainty to revenue quality, potentially eroding advertiser and investor confidence. Management's plan to sunset key user cohort metrics could reduce transparency, making it harder to assess growth durability during a period of AI disruption. Therefore, a wait-and-see approach is prudent until the next 1-2 quarters demonstrate improved U.S. cohort trends and stable ad measurement controls.

Thesis delta

The Seeking Alpha article reinforces the bullish financial narrative but does not shift the DeepValue thesis, which already accounts for strong metrics while stressing unresolved risks. No material change is warranted; the thesis remains that investment depends on near-term resolution of user growth deceleration and ad measurement opacity, not just valuation attractiveness.