Reddit, the community-driven social platform, keeps more of every dollar it earns than almost any company its size.
Gross margins top 90%, and adjusted earnings margins are set to widen, the kind of profitability profile that usually commands a premium.
Reddit's shares carry no such premium, down 37% this year, which puts a high-margin business on offer at a marked-down price.
The data prize
The larger draw sits in what Reddit owns rather than what it sells.
Its archive of human conversation has become a sought-after training ground for AI developers, who pay for access through data licensing deals.
Landing bigger agreements of that kind is where the real upside lies, a revenue line that barely existed a few years ago.
Selling to the shopper
Reddit is also moving into lower-funnel commerce, the part of advertising aimed at users close to buying.
It has launched Collection Ads, a Shopify integration and Dynamic Product Ads, tools that steer advertiser money toward the point of sale.
The push widens the business beyond straight brand advertising, into the part of the market where budgets run deepest.
The risk to weigh
The case is not without holes.
Much of Reddit's traffic arrives through search engines, and those referrals have turned choppy, while advertising growth is slowing.
Passage Research started coverage at Hold with a $158 price target, drawing a comparison with Snap, the owner of Snapchat, whose growth stalled after an early run.
For buyers of the story, the wide margins and the licensing option are the reasons to look past that.
