Reddit: A Penny Farthing in the Age of Algorithms?

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Reddit, that sprawling digital bazaar where opinions are traded like questionable potions and cat pictures are currency, has recently presented its accounts. And, rather like a wizard discovering a previously unnoticed loophole in the tax code, the numbers are…interesting. They report a 70% surge in revenue, which, in the normal world, would be cause for celebratory mead. But this is the world of tech stocks, where ‘growth’ is often mistaken for ‘defying gravity’ and the laws of economics are merely suggestions. Full-year revenue growth clocked in at a respectable 69%, and the number of people shouting into the digital void (or, as they call it, ‘active users’) has increased. Yet, the stock itself has been performing like a damp squib, losing a third of its value. A curious state of affairs, wouldn’t you agree?

Understanding the Momentum (or Lack Thereof)

The fourth quarter saw Reddit pull in $726 million, a figure that would have impressed even the most avaricious dragon. The bulk of this came from advertising, which, let’s be honest, is the lifeblood of most digital realms. Ad revenue jumped 75% to $690 million. The growth rate even accelerated from the previous quarter. One might expect the market to reward such performance with a shower of gold coins. Instead, it appears to be offering a politely worded ‘wait and see.’

This top-line growth has trickled down to the bottom line, too. Net income for the quarter was $252 million, a considerable improvement over the $71 million of a year ago. They even managed to turn a loss of $484 million in 2024 into a profit of $530 million in 2025. A remarkable turnaround, though one suspects a healthy dose of accounting sorcery was involved. As CEO Steve Huffman put it, it’s the result of ‘years of foundational work coming to life.’ One imagines this ‘foundational work’ involved a lot of caffeine and desperate coding sessions.

But the real story isn’t just about money. It’s about people. Daily active users have risen 19% to 121.4 million, and weekly users are up 24%. Internationally, growth is a robust 34%, while in the US it’s a more sedate 12%. Huffman believes we’re witnessing a ‘once-in-a-generation shift’ – a turning away from the curated perfection of algorithmic feeds towards the messy, authentic chaos of Reddit. He argues that, in a world of increasingly synthetic experiences, people are craving genuine connection. Which is a rather astute observation, even if it does sound suspiciously like marketing hyperbole.

“We’re now operating in a fundamentally different Internet. One shaped by opaque algorithms, generative content and growing distrust. Yet, amid this shift, more people are turning to Reddit. Not just to aimlessly scroll, but to connect, learn and research. That’s because Reddit is the most human place on the Internet.”

In essence, Reddit is positioning itself as a bastion of authenticity in an age of AI-generated content. A noble goal, perhaps, but one fraught with peril. 1

The Risks: Dragons and Digital Demons

There are, naturally, risks. Two significant ones, in fact, and they’re the reason the stock remains stubbornly grounded despite its impressive growth. The first is the threat that AI poses to Reddit’s claim of authenticity. Even Huffman admits it’s becoming increasingly difficult to distinguish between a real person’s thoughts and those generated by a machine. “That’s why we’re actively working on ways to preserve our authenticity and conversation quality,” he says. Their solutions? Bot verification, labeling, and expanding verified profiles. A valiant effort, but one feels like trying to bail out the ocean with a thimble.

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The second risk is valuation. As of this writing, the stock trades at a price-to-earnings ratio of 57. While Reddit’s growth is impressive, this valuation leaves little room for error. One might consider buying if top-line growth were accelerating even faster, but the acceleration in Q4 was merely moderate. Worse still, management is forecasting a deceleration in Q1, with revenue growth expected to fall to 52-54%. 2

Overall, Reddit is a fascinating business with considerable potential. But I believe the shares remain overvalued, even after their recent pullback. It’s a penny farthing in the age of algorithms – charming, certainly, but perhaps not the most practical mode of transportation for the long haul.

1 The irony, of course, is that even ‘authentic’ conversation on Reddit is often carefully curated by moderators, who wield their power with the zeal of medieval inquisitors. But let’s not dwell on such inconvenient truths.

2 One suspects this deceleration is due to the fact that even the most dedicated Redditors eventually tire of endlessly scrolling through memes and conspiracy theories. But that’s just a hunch.

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2026-02-26 22:23