Reddit Beat Alphabet and Meta on Our Peer Screen
Our peer screen ranks every company against others its own size in its own sector. In US large-cap Communication Services it put Reddit first, ahead of Alphabet, Meta and Netflix. We went through the numbers pillar by pillar to see where that lead is real, where it is not, and what the screen leaves out.
Our Highest Peer Score by Sector screen does one job: it finds the company with the best peer ranking in each sector. For US Communication Services this month it returned Reddit.
That is a sector containing Alphabet, Meta, Netflix, Disney and Comcast. Here is the top of the table:
| Rank | Company | Peer score | Quality score |
|---|---|---|---|
| 1 | Reddit (RDDT) | 4.20 | 2.66 |
| 2 | Spotify (SPOT) | 3.96 | 3.01 |
| 3 | Netflix (NFLX) | 3.92 | 3.68 |
| 4 | Alphabet (GOOGL) | 3.83 | 3.94 |
| 5 | The New York Times (NYT) | 3.82 | 3.27 |
| 6 | Meta (META) | 3.82 | 4.04 |
Read those two columns against each other. The peer score has Reddit first and Meta sixth. Our Quality score, built from the same ten pillars, has them almost exactly the other way round. The gap between those columns is most of this article, and we come back to it at the end.
A $29bn company ranking above a $4.2 trillion one is the sort of result worth checking before believing. So we went through it pillar by pillar.
How the peer comparison works
Reddit is not scored against the whole market. It is scored against a cohort defined by three things at once: the same region, the same sector, and the same size band. For Reddit that is US, Communication Services, large cap, which comes to 31 peers.
Alphabet and Meta are in that cohort because our large-cap band is everything above $10bn in market value, and we do not sub-divide above that line. A $29bn Reddit and a $4.2 trillion Alphabet are both simply large-cap Communication Services companies. That is a deliberate choice: sub-dividing further would leave most cohorts too thin to rank against, and we require a minimum of four peers before we will produce a score at all.
Every input is trailing twelve months, so the screen is asking who had the best last year, not who has the best history. That distinction matters here and we come back to it at the end.
From there the scoring works in three steps:
- Rank each metric. We take about 40 financial metrics and rank Reddit against that cohort on each one, producing a percentile. Being at the 90th percentile on gross margin means only 10% of the cohort did better. Where a peer has no usable figure for a given metric it is excluded from that one ranking, so the charts below show slightly different peer counts per metric.
- Convert to a 1 to 5 score. Percentiles are grouped into fifths. Top 20% of the cohort scores 5, the next 20% scores 4, and so on down to 1 for the bottom fifth. This deliberately loses precision. We would rather say "top quintile on margins" than pretend the gap between the 91st and 94th percentile means something.
- Weight into pillars. The metrics group into ten pillars, each weighted by how much we think it tells you about a business:
| Pillar | Weight | Pillar | Weight | |
|---|---|---|---|---|
| Returns Overview | 18% | Leverage & Coverage | 8% | |
| Margin Efficiency | 16% | Valuation Multiples | 8% | |
| Cash Flow Quality | 14% | Dividend Metrics | 6% | |
| Top Line Growth | 12% | Per Share Fundamentals | 5% | |
| Operational Efficiency | 10% | Liquidity & Working Capital | 3% |
Each pillar shows its 1 to 5 score alongside the raw cohort percentile, so you can see both the band and the position inside it. Reddit reads 4.8 on Returns Overview at the 89th percentile, and 1.5 on Valuation Multiples at the 19th.
Where a pillar cannot be scored it drops out and the remaining weights are rescaled. Reddit pays no dividend, so the card reads "9 of 10 available" and the other nine pillars carry the full weight.
That is the machinery. The rest of this piece is about what it found.
Growth: the cleanest win
This is where the gap is widest and least ambiguous.
| Revenue growth (TTM) | |
|---|---|
| 66.6% | |
| Meta | 27.7% |
| Alphabet | 20.1% |
| Netflix | 16.0% |
| Spotify | 13.1% |
| Sector median | 10.8% |
Reddit is growing revenue roughly 2.4 times faster than the next fastest large-cap in its sector, and more than six times the sector median. Revenue reached $2.78bn on a trailing basis, against $1.30bn two years earlier.
The operating lines moved faster still. EBITDA grew 290% and operating cash flow 156%, because Reddit crossed from losses into profit inside this window. Those percentages come off a small base and will not repeat, but the direction is not in doubt: this business turned the corner and then kept accelerating.
One thing worth clearing up, because it is the obvious objection. Reddit's 2024 loss was inflated by a one-off share-based compensation charge at IPO, and you might expect the recovery to be an artifact of that charge disappearing. It is not, at least not here. Share-based compensation is $338m in the trailing twelve months against $334m in the year before, essentially flat across both sides of the comparison. The growth is operating leverage, not an accounting effect washing out.
Gross margin: the best in the sector
Reddit's gross margin is 91.4%, the 100th percentile of its cohort. Nothing else in US large-cap Communication Services runs a higher one.
| Gross margin (TTM) | |
|---|---|
| 91.4% | |
| Meta | 81.8% |
| Alphabet | 60.9% |
| Netflix | 49.1% |
| Spotify | 32.8% |
| Sector median | 51.4% |
Cost of revenue is under 9% of sales. Reddit does not own studios, spectrum, cable, or a content budget. The content is contributed by users and the infrastructure is rented. That is a structurally cheaper business than almost anything else in the sector, and at this level it beats Meta by nearly ten percentage points.
The balance sheet: no debt
The third clean win, and the least discussed.
| Debt / equity | Current ratio | |
|---|---|---|
| 0.01x | 10.5x | |
| Spotify | 0.06x | 2.11x |
| Alphabet | 0.18x | 2.72x |
| Meta | 0.43x | 2.23x |
| Netflix | 0.47x | 1.14x |
| Sector median | 0.65x | 1.37x |
Reddit carries about $21m of debt against $3.3bn of equity, and holds roughly $1.5bn in net cash. In a sector where the median company runs 0.65x debt to equity, and where the telecom and media names carry considerably more, that is an unusual position.
It matters more than it looks. A company with no debt and net cash does not have to choose between funding growth and servicing lenders, and it is not exposed to refinancing at whatever rates prevail. Several companies in this same cohort are.
Returns: where it splits
Here the story stops being one-sided, and we would rather say so than skip the pillar.
| ROIC | ROE | Operating margin | |
|---|---|---|---|
| 23.5% | 29.0% | 28.2% | |
| Alphabet | 15.1% | 50.8% | 33.1% |
| Meta | 17.1% | 29.7% | 38.1% |
| Netflix | 24.3% | 48.0% | 29.7% |
| Spotify | 25.6% | 40.5% | 14.6% |
| Sector median | 6.8% | 14.7% | 16.3% |
On return on invested capital Reddit genuinely beats Alphabet and Meta, and by a wide margin. On return on equity it does not come close to Alphabet or Netflix. On operating margin it sits behind both mega-caps.
This is worth being precise about, because it is where a headline can mislead. Reddit tops the 31-company cohort on the composite score. Head to head against Alphabet and Meta specifically, it wins on growth, gross margin and balance sheet, and loses on operating margin and return on equity. The screen ranks it first because it is measuring it against the whole sector, most of which is telecom and legacy media, not against the two best businesses in it.
The price is already in the score
Worth being clear about something, because it is easy to miss. The peer screen has not overlooked Reddit's valuation. It is one of the ten pillars, and it is Reddit's worst by a distance: 1.5 out of 5, the 19th percentile of the cohort.
EV to sales is where it is starkest. Reddit trades at 10.05 times sales against a sector median of 3.12, which puts it at the third percentile. Only one company in the cohort is more expensive on that measure.
The other three multiples tell the same story more gently: EV/EBITDA 31.2 against a 13.1 median, price to book 8.94 against 3.51, and a P/E of 33.4 which at the 36th percentile is actually Reddit's least alarming valuation metric.
So why is Reddit still first overall? Because valuation multiples carry 8% of the weight, and the nine other pillars outvote it. That is a deliberate design choice rather than an oversight. The peer score is built to answer "which of these businesses performed best", not "which of these is the better buy". Those are different questions, and the second one is what the next section is about.
What the screen does not show
A peer score is one of five dimensions we run, and the other four are less flattering. This is the part to read before drawing conclusions.
Reddit scores 2.66 on Quality against 4.20 on Peers. Same ten pillars, opposite answer. The difference is the window. Our Quality score averages up to ten years of financials. Reddit has six, and five of them are loss-making. Averaged across that history its return on equity is minus 4.4% and its net margin is minus 9.0%. The peer score covers the trailing twelve months, which happens to be the only profitable stretch the company has ever had.
Neither number is wrong. One says the last year was excellent, the other says one good year is not a track record. Both are true.
The Valuation dimension scores 2.0 out of 5. This is a different measurement from the valuation pillar above: rather than ranking Reddit's multiples against peers, it compares a model-derived fair value against the market price. That model puts fair value near $92 against a share price of $153, roughly 40% below. There is no discounted cash flow for Reddit in our data because its history is too short to build one, so this read rests on multiples alone, which is worth knowing before leaning on it.
One note on the tax line. Reddit's trailing effective tax rate is 0.77%, because years of accumulated losses are still offsetting current taxable income. Alphabet pays 16.8% and Meta 29.6%. So Reddit's 31% net margin is closer to a pre-tax margin, and at a normal rate it would be about 25%. This does not affect the growth, gross margin or balance sheet comparisons above, which all sit above the tax line, but it is worth knowing before quoting the net-income figures.
Where this leaves us
Reddit had the best trailing twelve months of any large-cap in US Communication Services. It grew faster than anything else in the sector, it runs the highest gross margin of the cohort it was measured against, and it carries no debt. Against Alphabet and Meta specifically it wins on some measures and loses on others.
It also has one year of profits behind it, a valuation in the third percentile of its own sector on sales, and a tax position that will normalise eventually.
That combination is exactly what our five dimensions are designed to surface. When Peers says 4.2 and Valuation says 2.0, the framework has not malfunctioned; it has told you the business is performing and the price already reflects it. What you do with that is a research question, and this is a starting point for it rather than a conclusion.
You can work through the full picture on Reddit's peers, quality and valuation tabs, or run the sector screen yourself to see which company tops your own sector this month.