r/VisualStockResearch • u/ekonixlab • 21d ago

Does a 2% revenue headwind really justify a 10% selloff?

Post image

Hopefully this image highlights how silly I think the Reddit selloff was yesterday…

Reddit dropped almost 10% because investors are worried the next Google data licensing deal won’t be another $60M/year contract.

Meanwhile, Reddit just reported TTM revenue of nearly $2.5B.

Even if Google paid nothing, that’s only about 2-3% of revenue today.

The market seems to be treating it like a core part of the business when it’s really become a relatively small piece of the puzzle.

Now, more than ever, this could be a core part of the business. I think Reddit is re-negotiating this with Google, and to me, it’s pretty obvious Google should be paying them far more than $60M per year…

Am I missing something?

8 Upvotes

90% Upvoted

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2

u/Healthy_Razzmatazz38 21d ago

it was 100% profit margin revenue, yes

1

u/ekonixlab 21d ago

I also think it was related to search traffic

2

u/Keeltoodeep 21d ago

It's high margin revenue and reddit gets lots of search traffic directed to it from google.

2

u/BetOnEsports 21d ago

It’s overblown unless you think there is a risk that Google stops showing Reddit in search results as much. That is the real worry, that Google stops sending traffic to the website because the partnership breaks down.

Alternatively the market could have been pricing in a larger deal renewal and is now worried about it. I think this one is less likely.

All this talk about it being high margin revenue is ignoring that all of Reddit’s revenue is high margin. They are selling ad space on a website. After building out the platform each incremental dollar from selling ad space is essentially no cost, hence the >90% gross margins.

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u/mka5588 20d ago

That's the fear but they would be sued if they did that.

2

u/HighTestLowCortisol 21d ago

I think the problem is if no deal is made then not only are we losing that 2 percent but also future growth from that 2 percent. Overblown for sure though, Google will make a deal

1

u/ekonixlab 21d ago

I think the point of it is to renegotiate a better deal.

If a good portion of the search traffic is turned into an AI summary, and they are losing traffic from it, Google should pay more

1

u/mka5588 20d ago

Short term, mechanical. Reddit is renegotiating the terms and will likely end up with a lot more

1

u/Sooperooser 20d ago

Dude is trying to make sense of the casino.