RDDT · Reddit
Conviction · Low · more likely to lag the S&P 500 over the next three months
Wrong if: a daily close above $125
Updated ·
Price against the kill line
21.2% clear of its kill line on the 13 November 2026 close.
How to read this
This note expects the shares to lag the market, so its kill line sits above the price: a close above the red mark would prove the view wrong. Prices run from low on the left to high on the right. The dot is where the stock closed on 13 November 2026, left of the mark while it is below the line; a dot right of the mark has closed through it.
The scale is stretched near the line, so close calls are easy to see. More than 8% from the line, the stock reads well clear, with a hollow dot to show the figure is off the drawn scale.
The kill line is the research note's own test. The portfolio sells on business facts, not on a price. How the portfolio decides
Three months against the kill line
Daily closes, to . Red: the kill line, a daily close above $125.00, set on 12 November 2026. The shares are down 40.2% since the close; the S&P 500 is down 2.1% over the same sessions. Figures in the note can cover a different window.
Kill line
A daily close above $125, DA Davidson's post-report target, which would show the shares recovering rather than lagging; or fourth-quarter DAUq at or above the third quarter's 130.3 million, with revenue above the $1.03 billion top of the guide.
Research onlyNot in the portfolio.
Key figures from the filings · Technology
Quarter to 30 September 2026, filed 30 October 2026; valuation at the 13 November 2026 close
- Revenue, latest quarter ($M)
- 895
- Revenue, change on a year (%)
- +53.0
- Gross margin (%)
- 91.5
- Operating margin (%)
- 29.2
- Free cash flow, four quarters ($M)
- 1,198
- Net cash, cash less debt ($M)
- 3,033
- Price to earnings (×)
- 20.0
- Enterprise value to sales (×)
- 5.5
All filed numbers
What Reddit reports to the SEC in its quarterly and annual filings. Each group states its period and filing date once; a figure dated otherwise says so. Built from the filings known on .
| Quarter to | Revenue ($M) | On a year (%) | Gross margin (%) | Operating margin (%) |
|---|---|---|---|---|
| filed | 895 | +53.0 | 91.5 | 29.2 |
| filed | 805 | +61.1 | 91.3 | 28.8 |
| filed | 663 | +69.1 | 91.5 | 27.6 |
| filed | 726 | +69.7 | 91.9 | 31.9 |
| filed | 585 | +67.9 | 91.0 | 23.7 |
| filed | 500 | +77.7 | 90.8 | 13.6 |
| Pre-tax income ($M) | 289 |
| Net income ($M) four quarters: 992 | 283 |
| Diluted shares, change on a year (%) against the quarter to 30 September 2025 | −0.4 |
| Operating cash flow ($M) | 1,205 |
| Capital spending ($M) | 6.6 |
| Free cash flow ($M) | 1,198 |
| Cash and short-term investments ($M) | 3,033 |
| Debt ($M) | None reported |
| Net cash, cash less debt ($M) no debt reported | 3,033 |
| Deferred revenue ($M) +90.2% on a year | 38.8 |
| Backlog, orders not yet delivered ($M) −64.0% on a year | 62.4 |
| Receivables ($M) | 730 |
| Inventory ($M) | Not reported |
| Shareholders' equity ($M) | 3,582 |
| Market value ($M) | 19,873 |
| Enterprise value, market value plus net debt ($M) no debt reported | 16,840 |
| Enterprise value to sales (×) no debt reported | 5.5 |
| Enterprise value to operating income (×) no debt reported | 18.5 |
| Price to earnings (×) | 20.0 |
| Price to book value (×) | 5.5 |
| Free-cash-flow yield (%) | 6.0 |
Short interest (FINRA, settled 15 October 2026, published 13 November 2026): 10.7% of shares outstanding sold short, 5.1 days of average trading to cover, −2.3% since the previous report.
| Window | Bought | Sold |
|---|---|---|
| 90 daysfrom | $0 | $31.3M |
| 12 monthsfrom | $8.9M | $239.5M |
The thesis
Reddit, Inc. shares are more likely to lag the S&P 500 over the next three months. Search referral traffic is falling faster than the advertising business can offset, and management has warned that daily users could shrink in the fourth quarter. The fourth-quarter report, expected in early February 2027, settles it. It will show whether daily active uniques (DAUq, Reddit's count of distinct daily visitors) fall by the low-double-digit percentage management flagged, and whether revenue lands inside the $1.00 billion to $1.03 billion guide.
The rating is Low. Third-quarter profits were strong, but the user count that drives the multiple is turning down. Since the report, six brokers have cut their price targets and three have downgraded the stock. A director sold shares on the open market in early November.
At the $105.66 close on 11 November 2026, the shares sat 59.9% below the $263.50 intraday high of 9 January 2026. The price already assumes some user loss. It does not yet show how large that loss will be, and the February report measures it.
Bullish and bearish views on Reddit, Inc.
The bull case on Reddit, Inc. (RDDT), in brief: revenue and profit are still accelerating. The bear case: search referrals are falling faster.
Bull case
- Revenue and profit are still accelerating. Third-quarter revenue rose 53% year over year to $895 million, above the company's own $860 million to $870 million outlook. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) was $402 million, a 44.9% margin (company 8-K, 29 October 2026).
- Advertisers pay more for each user. Global average revenue per user rose 36% to $6.87 in the third quarter, and U.S. revenue per user rose 53% to $13.82 (company 8-K, 29 October 2026).
- Cash generation funds buybacks. Free cash flow was $363 million in the third quarter, up 98%. Reddit repurchased about 670,000 Class A shares for $100 million at an average of $149.81, bringing 2026 buybacks through September to about $340 million (company 8-K, 29 October 2026).
- Logged-in users carry the revenue. Management says logged-in and app users generate more than 80% of commercial revenue (TradingKey, 30 October 2026). That cushions revenue against a loss of casual search visitors.
- New ad and product formats are shipping. On 3 November 2026 Reddit began testing contextual ads on search pages based on the query (Benzinga). On 10 November 2026 it launched Reddit Reviews in the U.S., with expansion abroad planned for 2027 (Benzinga).
Bear case
- Search referrals are falling faster. The third-quarter shareholder letter said search referral traffic was "down meaningfully," with the decline accelerating late in the quarter. CEO Steve Huffman said referrals fell by more than 1 million per week on average in October (Yahoo Finance, 30 October 2026).
- Management has warned users may shrink. Huffman said DAUq could fall by a low-double-digit percentage from about 130 million in the fourth quarter if the trend continues. U.S. DAUq already fell 2% year over year to 50.7 million in the third quarter (company 8-K, 29 October 2026).
- Guidance came in below estimates. The fourth-quarter revenue guide of $1.00 billion to $1.03 billion has a midpoint below the roughly $1.05 billion Wall Street expected (Yahoo Finance and TradingKey, 30 October 2026).
- The logged-in shift trades reach for engagement. On 5 November 2026 Huffman announced a move to a logged-in-only experience (Fiscal.ai). Logged-out DAUq was 76.8 million of the 130.3 million total in the third quarter (company 8-K). Requiring a login risks losing more of those visitors.
- Analysts are cutting targets and ratings. Evercore ISI downgraded the stock to In-Line with a $120 target on 2 November 2026. KeyBanc and Citizens also downgraded after the report (TradingKey, 30 October 2026). Citi cut its target to $186 from $245, JPMorgan to $150, DA Davidson to $125, Guggenheim to $140 and Argus to $150 (Benzinga and Fiscal.ai, 30 October to 12 November 2026).
- A director sold near the lows. SEC Form 4 filings show director Mary Porter Gale sold 6,000 shares at an average of $98.00 on 3 November 2026 and 4 November 2026, and 4,000 shares at $96.00 on 6 November 2026. Earlier sales by the CEO (17,308 shares at an average of $158.57 on 13 October 2026) and by COO Jennifer Wong (60,000 shares at an average of $150.55 on 14 October 2026) were made under Rule 10b5-1 plans, which schedule trades in advance.
Price setup
The shares closed at $105.66 on 11 November 2026, down 33.2% from the $158.12 close of 13 August 2026. The 52-week closing low is $90.97, set on 2 November 2026 after the report-driven sell-off. Since then the shares have recovered unevenly, closing at $93.81 on 5 November 2026, $100.79 on 9 November 2026, $98.67 on 10 November 2026 and $105.66 on 11 November 2026.
The shares trade far below both trend lines. As of 11 November 2026 the 50-day moving average is $141.57 and the 200-day moving average is $154.59, with the 50-day under the 200-day. A return to the 50-day average would require a rally of more than a third from the 11 November 2026 close. Analyst targets issued since the report range from DA Davidson's $125 and Evercore ISI's $120 up to Citi's $186.
Catalysts ahead
- ~5 February 2027 (est.): Fourth-quarter 2026 results and 2027 first-quarter outlook. Shows whether DAUq fell by the low-double-digit percentage management warned of and whether revenue landed inside the $1.00 billion to $1.03 billion guide.
- ~15 December 2026 (est.): Results of the logged-in-centric test in select international markets. Shows whether requiring a login keeps visitors who arrive from search or loses them; logged-out users were 76.8 million of 130.3 million DAUq in the third quarter.
What would change the view
A daily close above $125, DA Davidson's post-report target, which would show the shares recovering rather than lagging; or fourth-quarter DAUq at or above the third quarter's 130.3 million, with revenue above the $1.03 billion top of the guide.
What it trades with
Reddit's traffic comes partly from Google search, so the shares trade on news about AI-generated search answers that reduce clicks to outside sites. Reddit has content-licensing agreements with both Google and OpenAI (Yahoo Finance, 30 October 2026). The post-report fall came in the same session window as a broad technology sell-off. Benzinga reported on 30 October 2026 that Alphabet had its worst week since 2011, and on 1 November 2026 that two days of selling erased more than $600 billion of technology market value. Swings in large-cap technology and digital-advertising stocks therefore add to Reddit's own news.
Notes
- Reddit has a dual-class share structure: Class B shares carry extra votes, so public Class A holders have limited voting control.
- Many executive share sales are made under Rule 10b5-1 plans, which schedule trades in advance; Form 4 filings state when a sale falls under such a plan.
The evidence, claim by claim (8)
- Third-quarter 2026 revenue was $895 million, up 53% year over year; advertising revenue was $847 million, up 54%. Reddit Q3 2026 results, 8-K filed 29 October 2026 · as of
- Third-quarter adjusted EBITDA was $402 million (44.9% margin); net income was $283 million; free cash flow was $363 million. Reddit Q3 2026 results, 8-K filed 29 October 2026 · as of
- Global DAUq was 130.3 million, up 12%; U.S. DAUq was 50.7 million, down 2%; logged-out U.S. DAUq fell 4% to 27.3 million. Reddit Q3 2026 results, 8-K filed 29 October 2026 · as of
- Fourth-quarter 2026 guidance: revenue of $1.00 billion to $1.03 billion and adjusted EBITDA of $480 million to $510 million. Reddit Q3 2026 results, 8-K filed 29 October 2026 · as of
- CEO Steve Huffman said search referrals fell by more than 1 million per week on average in October and that DAUq could fall by a low-double-digit percentage in the fourth quarter. Q3 2026 shareholder letter and earnings call, reported by Yahoo Finance · as of
- Reddit repurchased about 670,000 Class A shares for $100 million in the third quarter at an average price of $149.81. Reddit Q3 2026 results, 8-K filed 29 October 2026 · as of
- Director Mary Porter Gale sold 6,000 shares at an average of $98.00 on 3 November to 4 November 2026 and 4,000 shares at $96.00 on 6 November 2026 in open-market sales. SEC Form 4 filings dated 5 November 2026 and 10 November 2026 · as of
- Evercore ISI downgraded Reddit to In-Line with a $120 target; Citi cut its target to $186 from $245 and kept a Buy rating. Benzinga and Fiscal.ai analyst notes · as of
Sources
- Reddit, Inc. - Form 8-K - FY2026 · sec.gov
- Reddit Sinks 25% as Search Traffic Falls “Down Meaningfully” and Q4 Guidance Disappoints · finance.yahoo.com
- Reddit Tumbles 23% Premarket to Fall Below $100, Down Over 60% From 52-Week High as Search Traffic Crisis Deepens · tradingkey.com ·
- Reddit Warns Search Traffic Decline Could Pressure Fourth-Quarter User Growth · benzinga.com
- Reddit, Inc. - Form 10-Q - FY2026 · sec.gov
Related · shared themes
U
Unity Software
Unity Software's ad turnaround gives the shares a modest edge over the S&P 500: Q3 Strategic Grow revenue of $431.5 million beat guidance…
EVC
Entravision Communication
Entravision's ad-technology unit grew 133% in the third quarter, beating its own guide, and the shares have held the gain; the…
MGNI
Magnite
Magnite's connected-TV growth beat guidance by a wide margin and lifted its 2026 outlook, giving the shares a modest edge over the S&P 500.…
PUBM
PubMatic
PubMatic's Q3 2026 beat, with revenue up 17% to $79.6 million and connected TV growth above 30%, supports a revenue recovery the shares…