Issue #67

Analysis: Two High-Growth Social Stocks Trading at a Discount

The next era of social media isn’t being won by who has the most followers or the flashiest influencers — it’s being decided by engagement utility and data sovereignty. As the digital landscape shifts from mindless scrolling to high-intent discovery, two layers have become the bedrock of the sector: the visual communication tools that capture the attention of the next generation, and the human-curated data that fuels the global AI revolution.

This is where social media shifts from "apps" to essential infrastructure — and where two overlooked stocks are emerging as massive value plays.

👉 One company is evolving from a simple camera app into an AR powerhouse, reaching over 90% of the youth demographic and proving that private, ephemeral connection is more durable than public feeds.

👉 The other has become the "Library of Alexandria" for the AI age, owning the authentic, human-generated conversations that every major AI model now pays to access.

👉 Both are undervalued, reaching massive profitability milestones, and sitting on unique data moats that competitors cannot replicate.

In this edition, we break down the AR pioneer and the AI data king — and why these two stocks are the "cheap" foundation for a high-growth 2026 portfolio.

Snap (NYSE: SNAP)

Snap (NYSE: SNAP) is a leading "camera company" that has evolved into a global powerhouse in visual communication, augmented reality (AR), and digital advertising. By focusing on private, ephemeral messaging and innovative AR experiences, Snap has carved out a unique niche among younger demographics, boasting a massive user base that continues to scale globally despite intense competition from platforms like TikTok and Instagram.

Business Model and Revenue Streams 📦

Snap’s business model centers on the "Snapchat" application, which serves as a hub for communication, content consumption, and digital interaction. Unlike traditional social media, Snap positions itself as a way to connect with "real friends," avoiding the public-facing "likes" and "followers" metrics that define its peers. The company generates revenue through three primary channels:

• Advertising Revenue: This is Snap’s primary engine, representing over 80% of total revenue. The company has strategically shifted its focus toward Direct Response (DR) advertising, which allows brands to drive specific actions like app installs or purchases. DR now accounts for approximately 75% of ad revenue.
• Snapchat+ Subscriptions: Launched as a high-margin diversification play, Snapchat+ has become a significant growth driver. As of early 2026, the service has reached nearly 17 million subscribers, creating an annualized run rate exceeding $700 million.
• AR and Hardware: While still a smaller portion of the mix, Snap’s AR ecosystem—used by over 350 million people daily—and its Spectacles hardware represent long-term bets on the future of spatial computing and developer-led monetization.

Macroeconomic and Policy Impacts:

Snap is highly sensitive to the global digital ad market, which is influenced by interest rates and consumer spending. Tightening monetary policies in 2025 initially pressured brand-oriented ad budgets; however, Snap’s pivot to performance-based (DR) advertising has helped it capture more resilient "lower-funnel" spending. Furthermore, global shifts in privacy regulations and data tracking (like Apple’s ATT) have forced Snap to invest heavily in its Conversions API (CAPI) and machine learning to maintain ad measurement accuracy.

Recent Performance and Corporate Developments 📈

Snap has shown a significant trend of financial recovery and operational discipline throughout 2025, heading into the first quarter of 2026.

Recent Financial Highlights: 💰

• Q3 2025 Revenue: Total revenue rose 10% year-over-year to $1.51 billion, slightly exceeding analyst expectations.
• Net Loss Reduction: Snap has successfully narrowed its losses. In Q3 2025, the net loss improved to $104 million (down from $153 million in the prior year), while Adjusted EBITDA jumped 38% to $182 million.
• User Growth: The platform reached a milestone of 943 million Monthly Active Users (MAUs) and 477 million Daily Active Users (DAUs) in late 2025, driven largely by growth in the "Rest of World" region.

Strategic Initiatives and Mergers: 🤝

In late 2025, Snap announced a major partnership with Perplexity AI to embed conversational AI search directly into the Snapchat interface. This move aims to make Snapchat a primary utility for its young audience. While there have been no major recent acquisitions, Snap has been active in the debt market, raising over $2 billion through senior notes in 2025 to bolster its balance sheet and fund AI infrastructure. Notably, the company also recently reached a settlement agreement in a high-profile user addiction lawsuit, clearing a significant legal hurdle for the platform.

Profitability and Fair Value 🎯

Snap is currently in a transition phase from "growth at all costs" to "profitable scale." While the company still reports GAAP net losses, its Free Cash Flow has turned positive, reaching $93 million in Q3 2025.

The company’s path to a "fair" valuation is supported by its PEG ratio of 0.71, which suggests the stock may be undervalued relative to its expected earnings growth. With a price-to-sales ratio that has compressed significantly from its historical highs, many value-oriented investors view the current price as a "cheap" entry point for a platform with nearly a billion users. Analysts suggest that if Snap can successfully monetize its international users (currently at an ARPU of only $1.11 compared to $9.20 in North America), the upside is substantial.

Analyst Estimates and Ratings 📊

• Consensus Rating: The general Wall Street sentiment has shifted toward "Hold" to "Moderate Buy" as of January 2026. However, it has been one of the most frequently upgraded stocks in the "Buy" category over the last 30 days due to its low valuation and stabilizing ad business.
• Price Targets: The average 12-month price target stands around $9.82, representing a forecasted upside of roughly 32% from recent trading levels near $7.40. Top-tier analysts at firms like Goldman Sachs and Morgan Stanley have recently adjusted targets upward, citing improved ad platform efficiency.

Investor-Focused Takeaway: Is SNAP Right for Your Portfolio?

Snap offers a high-beta opportunity for investors who believe in the long-term dominance of AR and the resilience of Gen Z/Alpha engagement. The stock is "available cheap" compared to historical multiples, but it requires a stomach for volatility.

What to Watch in the Near Term: 📈

• AI Search Integration: Monitor how the Perplexity AI partnership impacts user engagement and search-based ad revenue.
• International ARPU: Look for signs that Snap is successfully increasing monetization in Europe and the Rest of World.
• Q4 Earnings (Feb 2026): Watch for whether the company meets its revenue guidance of $1.68–$1.71 billion.

Recommendation:

Snap (SNAP) is a speculative "Buy" for growth-oriented investors. Its strong cash position ($3 billion), growing subscription revenue, and leading position in AR technology provide a floor for the valuation while offering explosive upside if ad market tailwinds continue into 2026.

Reddit (NYSE: RDDT)

Reddit (NYSE: RDDT) has transitioned from a niche "front page of the internet" into a high-growth advertising and data-licensing juggernaut. Since its IPO in early 2024, the company has defied skeptics by proving its unique, community-driven model can scale into a highly profitable enterprise. Reddit’s influence on culture and search trends has made its data some of the most valuable "real-world" training material for the AI era.

Business Model and Revenue Streams 📦

Reddit operates a community-based social platform where content is curated by users through upvotes and downvotes. This creates high-intent "interest graphs" that are extremely attractive to advertisers. The company’s revenue is categorized into two main pillars:

• Advertising Revenue: Accounting for over 90% of total sales, Reddit’s ad business is booming. Unlike other platforms, Reddit captures users who are actively seeking advice (e.g., r/Technology, r/PersonalFinance), allowing for high-conversion contextual advertising. In late 2025, the launch of "Max Campaigns" used AI to automate ad placement, resulting in up to 27% higher conversions for brands.
• Data Licensing and Other Revenue: This is Reddit's "secret weapon." Because Reddit is a corpus of authentic human conversation, it is a primary source for training Large Language Models (LLMs). Reddit has signed multi-million dollar licensing deals with giants like Google and OpenAI. As AI discovery evolves, Reddit is increasingly cited in AI-generated answers, creating a durable, high-margin revenue stream.

Macroeconomic and Policy Impacts:

Reddit is currently navigating a complex macro environment. While high interest rates in 2025 initially cooled discretionary ad spending, Reddit’s shift toward performance-based ads helped it maintain growth. However, the company is sensitive to trade policies and tariffs, which can impact the marketing budgets of its retail and consumer electronic partners. Additionally, Reddit is currently challenging regulatory hurdles, such as Australia’s social media age bans, which highlight the ongoing "policy risk" for global platforms.

Recent Performance and Corporate Developments 📈

Reddit’s financial performance in the second half of 2025 has been nothing short of spectacular, marked by a massive swing toward profitability.

Q3 2025 Financial Highlights: 💰

• Total Revenue: $585 million, representing a staggering 68% increase year-over-year.
• Net Income: The company posted a net profit of $163 million, a massive improvement from the $30 million reported in the same period of 2024.
• User Growth: Daily Active Uniques (DAUq) hit 116 million, up 19% year-over-year, proving that the platform’s "search-first" strategy is attracting new cohorts.
• Gross Margin: Reddit boasts a "best-in-class" gross margin of 91%, indicating that its incremental costs to serve new users are extremely low.

Strategic Initiatives and Mergers: 🤝

While Reddit has avoided major mergers, its focus has been on AI integration. The company is using AI to translate subreddits into multiple languages to fuel international growth. Management has also hinted at expanding into "Social Commerce," allowing users to buy products directly within community recommendations. The next major catalyst is the Q4/Full Year 2025 earnings report, scheduled for February 5, 2026, where the company is expected to guide for even stronger 2026 growth.

Profitability and Fair Value 🎯

Reddit is no longer a "struggling startup"; it is officially a profitable business. With a net margin of nearly 28% in Q3 2025, the company has proven its operating leverage.

In terms of valuation, Reddit presents a "tale of two metrics." On a Price-to-Sales (P/S) basis (around 15x), it appears expensive compared to the broader tech sector. However, many analysts believe this is justified by its 60%+ growth rate. Discounted Cash Flow (DCF) models from firms like Simply Wall St suggest an intrinsic fair value closer to $370–$380, implying that at current trading levels ($230–$250), the stock is still trading at a 30% discount to its long-term potential.

Analyst Estimates and Ratings 📊

• Consensus Rating: The consensus remains a "Buy," with 57% of analysts covering the stock issuing a "Strong Buy" or "Buy" rating.
• Price Targets: Following the Q3 beat, price targets have seen massive revisions. Evercore ISI recently initiated an "Outperform" rating with a $320 target, while Jefferies set a target of $325. Some aggressive estimates, such as those from Needham, have named it a "Top Pick for 2026" with targets as high as $300+.
• Last 30 Days: The stock has received multiple upgrades in January 2026, driven by the belief that Reddit is the primary "AI discovery" play.

Investor-Focused Takeaway: Is RDDT Right for Your Portfolio?

Reddit is a high-growth engine that has successfully cracked the code on monetization. It offers a rare combination of social media engagement and AI-data utility.

What to Watch in the Near Term: 📈

• Earnings Call (Feb 5, 2026): This will be the decider for the stock’s momentum in the first half of the year.
• Data Licensing Expansion: Any news of new "API-for-AI" deals will likely act as a major share price catalyst.
• International ARPU: Watch if Reddit can monetize its growing European and Asian user base as effectively as its US audience.

Recommendation:

Reddit (RDDT) is a "Strong Buy" for investors looking for aggressive growth. While the valuation looks high on the surface, its 91% gross margins and triple-digit EPS growth make it a unique "cheap" find in the social media space when adjusted for its massive future earnings potential.

Final Take: The Visual Engine and the Data Brain of the New Social Era

The social media landscape is no longer just about capturing "likes"—it’s about capturing utility. As digital interaction shifts toward high-intent discovery and immersive experiences, execution depends on two things: software that scales visual interaction and human-curated data that fuels the next generation of intelligence.

That’s where Snap (SNAP) and Reddit (RDDT) stand apart.

📸 Snap (NYSE: SNAP) — The AR Pioneer for the Next Generation

• ✔ Undisputed Leader in AR: Reaching 90% of the youth demographic in major markets with 350 million daily AR users.
• ✔ High-Margin Diversification: Snapchat+ is a proven $750M+ revenue engine with massive scalability.
• ✔ Attractive Valuation: Trading at a significant discount to intrinsic value with a PEG ratio of 0.71.
• ➤ Best for: Investors looking for a high-beta recovery play with a deep moat in augmented reality and Gen Z engagement.

🧠 Reddit (NYSE: RDDT) — The Human Data Engine for the AI Age

• ✔ The AI "Sleeper" Play: Owns the most valuable archive of authentic human conversation for training LLMs.
• ✔ Best-in-Class Efficiency: Boasts a 91% gross margin and has achieved massive GAAP profitability in record time.
• ✔ Contextual Ad Powerhouse: Captures high-intent users at the point of discovery, making it resilient to privacy shifts.
• ➤ Best for: Investors seeking aggressive growth and high-margin exposure to the "data layer" of the artificial intelligence revolution.

Investor Insight

🧩 Want a turn-around value play with a dominant grip on the future of AR? → SNAP

⚙️ Want a high-growth, high-margin engine powered by AI data licensing? → RDDT

Bottom Line:

The digital economy doesn’t grow on static feeds—it grows on augmented reality and authentic information. Snap owns the camera that the next generation sees the world through, while Reddit owns the collective human brain that AI models depend on.

As advertising dollars shift toward high-intent platforms and AI data needs explode, SNAP and RDDT aren't just social apps—they are the foundational assets of the modern internet.

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Happy Trading
​— Team Premium Stock Alerts