The Engineering of Truth: A Breakdown of Reddit

You know the drill. You need a new TV. You type "Best 65 inch OLED" into Google.

You stare at the results.

• Ad.
• Ad.
• SEO-spam blog titled "Top 10 TVs for 2025" written by a bot.
• Affiliate link farm.

So you sigh, go back to the search bar, and add the magic suffix: "...reddit."

Suddenly, you’re reading a thread from u/funky_fish (if this is you, sorry) arguing passionately about black levels and refresh rates. You breathe a sigh of relief. Finally. A real person.

We’ve all done it. But while we were busy using Reddit as a life hack to bypass the "AI Slop" era of the internet, something shifted in the market. Reddit stopped being just a messy social network for gamers and transformed into something much more valuable.

It became the only place left on the internet where you can prove humanity exists.

And if you look at their margins, 91% gross margins, to be exact, you realize that humanity is selling at a premium.

The Dead Internet Theory

There is a conspiracy called the Dead Internet Theory. It suggests that the majority of internet traffic, posts, and images are actually bot-generated, created to manipulate algorithms and manufacture engagement.

In 2025, that doesn’t even feel like a conspiracy anymore. It feels like Tuesday.

As LLMs flood the web with synthetic text, human experience is becoming a scarce resource. This is Reddit’s moat. Steve Huffman (aka spez) knows this. It’s why he’s betting the farm on keeping Reddit a messy human message board.

“Now that AI is everywhere, our aim is to keep Reddit the most human place on the internet.”

While Facebook and TikTok are trying to create the perfect algorithmic feed (often serving you AI-generated slop to keep you doom-scrolling), Reddit is doubling down on the one thing AI can’t fake: conflict.

Real humans argue. Real humans have bad grammar. Real humans give specific, anecdotal evidence about why a pair of hiking boots failed them on mile 14 of the Pacific Crest Trail.

That "messiness" is now a defensive asset.

The 91% Margin Miracle

Okay, let’s talk money. Because this is where the "Reddit is just a social network" thesis falls apart.

If you look at the Gross Margins of the major players, one of these things is not like the other:

• Snap: ~54%
• X/Twitter (RIP public data): ~64%
• Pinterest: ~80%
• Meta: ~82%
• Reddit: 91%

Ninety. One. Percent.

How? Because Reddit is arguably the leanest "Information Utility" in history.

Text is cheap. Hosting 4K video (TikTok/YouTube) burns cash. Hosting text threads costs effectively zero.

Labor is near free. Meta spends billions on moderation armies. Reddit has thousands of volunteer moderators (the "Mods") who do it for the love of the game (and a little bit of power).

Content is free. Reddit doesn't pay creators. You create the content because you want to win the argument.

Reddit isn't a media company. It’s a high-margin toll booth on the highway of human intent.

The Data Moat

From an engineering perspective, Reddit isn't just a bucket of text. It is a massive, labeled dataset of human judgment.

When you scrape the web, you get text. But you don't know if that text is true, helpful, or sarcasm.

Reddit has a feature that the rest of the web lacks: The Upvote.

That little orange arrow is a piece of metadata that signals "consensus reality." When Google or OpenAI trains their models, they are desperate for this signal. They don't just need to know what was said; they need to know if other humans thought it was useful.

This is why Reddit’s data is so valuable. They aren't selling words; they are selling the labeled weights that keep AI models from hallucinating.

The "Intent" Engine

Google’s entire business is built on intent. When you search, you want something. Meta’s business is built on attention. When you scroll, you are bored.

Advertisers pay a lot more for intent than attention.

For years, Reddit was stuck in the “attention" bucket. But the "add reddit to search" behavior moved them into the “intent" bucket.

If I search "Best winter boots reddit" and land on r/hiking, I am effectively holding up a sign that says: "I have $200 and I am ready to buy boots right now."

That user is 10x more valuable than a teenager watching a dance video. Reddit has finally figured out how to sell that user to advertisers.

Making Money

Reddit makes money in two ways: advertising and data sales.

In the first nine months of 2025, the split was $1.37B from advertising and $104M from “other revenue” (data licensing). Total revenue hit $1.48B, a massive 68% increase over the same period in 2024.

We’ve already touched on those 91% gross margins. They are fantastic, but they don’t tell the full story. You have to look at the Operating Expenses (OpEx) to see if this is actually a business.

OpEx (R&D, Sales & Marketing, G&A) is up 30% in Q3. Ideally, you don't want to see costs growing that fast, but you have to look at the ratio. Revenue grew 68%. Costs grew 30%.

This is the definition of Operating Leverage.

Because the gross margins are so high, Reddit doesn't need to build a new factory to sell a new ad. If they can keep that OpEx growth controlled, every incremental dollar of revenue falls to the bottom line at 91 cents on the dollar.

That is the mathematical bull case for the stock: Fixed costs, infinite inventory, and widening margins.

Competitive Landscape

Reddit doesn’t stand alone in the social landscape, and there’s a lot of big fish in the pond. Let’s talk about two of those fish: Meta and X.

Investors always ask: "What if Meta just clones this?"

Meta would have to rethink everything to tackle Reddit. It has "Facebook Groups," which are massive. But Facebook Groups are tied to your real identity (Your Mom is there). That destroys the one thing that makes Reddit work: honesty.

You can’t ask for honest career advice or discuss sensitive health issues when your profile photo is linked to your employer. Reddit’s anonymity isn't a bug; it is the prerequisite for the raw human data they sell.

X is interesting because you could quite easily compare it to Reddit. It’s text-based, it can be anonymous too, although it still requires an account to browse. But X is fundamentally architected around the social graph (Who you know). Reddit is architected around the interest graph (What you like).

X is a platform for performance. You post to build your personal brand. Reddit is a platform for Utility. You post to get an answer.

This distinction matters because of durability. A tweet (you’re never going to get me to stop calling them tweets) has a half-life of 20 minutes. It is a “news feed." A Reddit thread has a half-life of 5 years. It is a “knowledge base."

If you search for "How to fix a leaky faucet" on Google, you will never see a tweet. You will, however, see three Reddit threads. X failed to capture the "Long Tail" of human knowledge because their product optimizes for the now, while Reddit optimizes for the true.

The Villain: Google’s Guest House

Every good story needs a villain. For Reddit, the villain is also their landlord: Google.

Roughly 50% of Reddit’s traffic comes from Google Search. Reddit is currently living in Google’s guest house, eating Google’s food, and using Google’s Wi-Fi.

If Google decides to stop showing Reddit links (very unlikely) and instead uses Gemini to summarize the answer directly in the search results (which they are already doing), Reddit’s funnel gets cut in half overnight.

Reddit is trying to hedge this. They signed a $60M/year deal to let Google train AI on their data. It’s a "frenemy" relationship of the highest order. Google needs Reddit’s human data to stop their AI from sounding like a robot. Reddit needs Google’s traffic to survive.

A Second Villain: AI

AI is both a blessing and a curse for Reddit. Sure, they've penned deals that pay them because of AI, but having AI infiltrate the site's content would be a death blow.

Reddit is the last "human" place on the internet, as we noted above with spez's quote. If that humanness evaporates, replaced by the same "AI slop" we see everywhere else, Reddit is done for.

The downvote, Reddit's mechanism for keeping content in check, is all powerful here. Users hate AI drivel as much as anyone, and they'll push it to the bottom of the site. But, if one day it overpowers and the people give in, Reddit loses its user base and its ability to sell content to frontier model makers.

The Verdict

Reddit is trading at a steep multiple (~22x sales). The market clearly sees the growth.

But the bet here isn't just on ad revenue. The bet is on data scarcity. There’s a handful of sidebets too in gaming, shopping, and Reddit Answers.

In a world where AI can generate infinite content, the price of synthetic information trends toward zero. Conversely, the price of verified human information trends toward infinity.

Reddit owns one of, if not the, largest corpuses of human conversation in history. It’s also growing at over 10 million comments a day.

If you believe the internet is dying, you have to be bullish on the only place that’s still alive.