GM. This is Milk Road AI, trying to figure out which AI stock will pay for our retirement.
This company delivered another monster quarter and yet investors headed for the exits. Here's why our lead analyst thinks the market got this one wrong.
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THIS STOCK GREW 61% BUT STILL GOT CRUSHED β οΈ
This company has posted eight straight quarters of 60%+ revenue growth.
Yet its stock is down 46% over that same period.
The company weβre talking about here is Reddit.
They posted their earnings last week and it was incredible:
- Revenue: $804.9M, up 61% year over year, well above the $732M Wall Street expected.
- Ad revenue: $762M, up 64% year over year.
- Net income: $253M, more than doubled, at a 31% margin.
- Adjusted EBITDA: $343M, up 106%.
- Free cash flow: $261M, more than doubled.
- International revenue: up 84% year over year.
- Q3 guidance: $860-870M, above analyst estimates.
Almost every metric beat estimates but its stock RDDT still fell 22%.
The primary reason behind the drop was that the CEO mentioned search referral traffic got choppy late in the quarter.
That's it. That's the whole reason.
Our lead analyst Melvin thinks the market punished the wrong thing entirely and thatβs why he bought into RDDT last Friday.
While investors worried about where users were coming from, Reddit kept making far more money from the users it already has:
- Global revenue per user rose 36% to $6.18.
- In the U.S. specifically, RPU jumped 51% to $11.85.
The story with their audience is even more impressive:
- Reddit's U.S. daily active users have nearly doubled since early 2022.
- Climbing from around 26-27M to over 53M.
- Roughly a 98% increase at a steady 17% annual growth rate the entire way.
For years, Reddit built one of the internet's most engaged communities without fully monetizing it.
Now it's finally turning that engagement into revenue.
The audience was always there but the machine to extract value from it is only now being built out.
Then there's their second revenue line which is often overlooked:
- Reddit licenses its user conversations to AI companies for model training.
- Google and OpenAI are already signed.
- That business grew 24% last quarter to $43M.
Itβs easy to dismiss this revenue stream because it contributes just 5% of their total revenue.
But Melvinβs thesis is that this number could grow meaningfully over the next few years.
He bets that Reddit lands more major data licensing deals with frontier AI labs in the coming quarters.
Reddit has something very few companies can offer: They have years of real human conversation, debate and niche expertise across hundreds of thousands of communities.
AI labs need exactly that kind of data to train better models.
And because data licensing requires very little incremental cost, much of that revenue has the potential to flow through to profits.
Reddit is on its way to becoming a company with two powerful revenue engines:
- A rapidly growing ad platform.
- A high-margin AI data licensing business.
This is the key reason why Melvin bought into RDDT.
Melvin has built a reputation for spotting AI trends before they become popular.
He was bullish on Micron before the memory trade took off. He identified Nebius before it became one of the market's hottest AI infrastructure names. Now he's building a position in Reddit because he believes the market is overlooking its long-term AI opportunity.
Inside Milk Road PRO, you can see every stock Melvin owns, every trade he makes and the full thesis behind each investment.
Join Milk Road PRO for just $1 and follow all five analyst portfolios in real time. π
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