Best of Breed Growth Stocks' Julian Lin thesis on king of the meme stocks, Reddit $RDDT
Apr 29, 2024
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Justin Lin from Best of Breed Growth Stocks and Julian Lin discuss Reddit, Inc. (NYSE: RDDT) on the podcast. They cover Reddit's bull and bear cases, network effects, mismanagement, valuation, growth strategy, and misconceptions. Comparisons are made with tier 2 social media platforms and the challenges of monetization are explored in depth.
Tech companies reinvest in R&D for future profitability, challenging the idea of non-profitability as unsustainable.
Reddit's unique user base offers greater monetization potential compared to underperforming tier two social networks.
Reddit's challenges in monetization highlight the need for improved strategic direction and management decisions to realize revenue growth.
Deep dives
Efficiency and Profitability Potential of Tech Companies
Tech companies often reinvest their growth and gross profits into expanding their R&D teams, leading to periods of non-profitability but with the potential for strong future profits. The increasing operating leverage seen in tech stocks indicates improving margins and profitability, challenging the notion that non-profitability equates to a structurally unprofitable business.
Differentiating Reddit from Tier Two Social Networks
Reddit's potential for success is contrasted with the underperformance of tier two social networks like Twitter, Snapchat, and Pinterest. While these platforms faced strategic missteps and challenges, Reddit's unique user base and community-driven model may set it apart and offer greater potential for monetization and growth.
Challenges in Monetization and Mismanagement at Reddit
Reddit's 20-year history and efforts to monetize, including its ad server relaunch in 2018, raise questions about the company's management and mismanagement. The lack of monetization at Reddit compared to platforms like Instagram highlights potential inefficiencies and challenges in realizing revenue streams, hinting at a need for improved strategic direction and monetization strategies.
Reddit's Under-Monetization and Advertising Challenges
Reddit is compared to Twitter and Reddit is deemed as having underutilized advertising potential. Due to the nature of Reddit's content and user engagement, traditional advertisements like brand advertising may not be effective. The platform's engagement levels are strong, with some comparing it favorably to Instagram and Facebook, raising questions about its low average revenue per user (ARPU). The discussion highlights Reddit's historical challenges in optimizing advertising and the potential for improved monetization strategies.
Management Challenges and Growth Potential
The conversation delves into Reddit's management challenges compared to other social media platforms like Snapchat and Pinterest. Despite a loyal user base and high engagement levels, Reddit faces scrutiny for its under-monetization and advertising methods. The comparison to platforms like TikTok and Instagram underscores the importance of effective monetization strategies and user engagement. The episode examines Reddit's potential for revenue growth, margin expansion, and the impact of management decisions on the platform's valuation and competitive positioning in the social media landscape.
[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
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