The price of Reddit's data
The upcoming Google renewal will be the first real test of Reddit's pricing power
by Compound Team · July 27, 2026 · 8 min read
Summary
When you search Google for the best headphones under $200, or whether you really have to see The Odyssey in IMAX, there’s a decent chance you append one word: Reddit. It has become one of the most common habits in online search, because the answer you want is a human one. AI systems have reached the same conclusion. Reddit is the single most-cited source in generative AI answers, ahead of other domains like Wikipedia and YouTube.1
Google puts a number on that. It pays Reddit a reported $60M a year for access to its data, under a contract signed in February 2024 that is up for renewal this year.2 A week ago, reporting emerged that Reddit had internally discussed cutting Google off entirely. The news took roughly 10% off the stock over the following sessions, a move far larger than a $60M fee is worth on its own.3 A lost $60M contract cannot explain a swing that size. The reaction tells you the market is valuing something bigger, namely Reddit’s data as an input to AI, of which the Google fee is only the most visible marker.
This piece focuses on the smaller data licensing business inside Reddit, sizes its contracts partner by partner, and values them under three renewal outcomes. The spread between the downside and upside cases is $46 per share, about 27% of where the stock trades.
Why Reddit matters to AI
Reddit’s value to an AI system falls into three buckets, and they are worth separating because they are not equally durable.
i) Search and answer quality. Much of what makes Google’s results and AI Overviews useful on subjective questions, what to buy, where to eat, whether something is worth it, is that they surface a genuine human opinion. Reddit is where those opinions live, across more than 100k+ subreddits. Remove it and answer quality visibly degrades.
ii) Model training. Reddit conversation has long been part of the corpora behind large language models. This is arguably the bucket that matters least going forward: a model is trained on a snapshot, and once trained, it does not need the snapshot again.
iii) Inference and freshness. This is the durable one. A trained model still knows nothing about a phone released last week or a restaurant that opened last month. Reddit’s constant flow of fresh, human, long-tail discussion is exactly what a live system reaches for at query time, and unlike a training snapshot, it has to be re-licensed continuously.
The concentration shows up wherever anyone measures it. Reddit accounts for ~40% of all citations in answers from major LLMs, with Reddit representing 44% of the social-platform citations inside Google’s own AI Overviews.1
The demand is visible in traffic, too. Reddit is now the sixth most-visited site on the internet, and among the established names it is growing fastest. The only site ahead of it that is growing quicker is ChatGPT.4
| # | Domain | Monthly visits (B) | YoY |
|---|---|---|---|
| 1 | google.com | 87.5 | +5.1% |
| 2 | youtube.com | 29.9 | +2.5% |
| 3 | facebook.com | 11.8 | +3.7% |
| 4 | instagram.com | 7.4 | +15.5% |
| 5 | chatgpt.com | 5.6 | +24.0% |
| 6 | reddit.com | 4.4 | +21.3% |
| 7 | x.com | 4.2 | +1.5% |
| 8 | whatsapp.com | 3.6 | -5.6% |
Advertising is still the main business
Reddit reports as a single segment, which obscures the fact that it runs two very different businesses.
Advertising is still the core business, and it has grown healthily. Revenue grew 69% year over year in the first quarter of 2026, almost all of it advertising, as the ad platform matures and pricing improves.3 This is what carries the majority of Reddit’s current valuation.
Licensing is smaller, and its shape is different. It stepped up in 2024 when the Google and OpenAI contracts were signed, and has held roughly level since. These are multi-year fixed contracts that only reprice on renewal rather than meters that tick up with usage, so even as demand for Reddit’s data has risen, the revenue line has moved little.
Because advertising has compounded so fast, licensing has fallen as a share of the business since 2024, from nearly 9% to around 5% in FY26E. Where it goes from here is entirely a function of the renewals.
Reddit’s current licensing deals
| Partner | Annual value ('24A) | Signed | Renewal | Note | |
|---|---|---|---|---|---|
| ~$60M | Feb 2024 | 2026, expiring | Reddit is pushing to reprice on usage rather than a flat fee. The ~$60M figure is press-reported, not filed. | ||
| OpenAI | ~$80M | May 2024 | Est. 2026–27 | Grounds ChatGPT's conversational answers. The ~$80M figure is implied (total licensing revenue less the reported Google fee), not disclosed. | |
| Total data licensing | $140M | ||||
On July 22, reports emerged that Reddit had internally discussed cutting off Google’s data access entirely, as the contract signed in February 2024 comes up for renewal this year. Reddit is pushing to reprice it on a usage basis rather than a flat fee, and the reported threat to withhold access sits inside that negotiation. That renewal is the setup for the scenarios below.
Laying out possible outcomes for data licensing
licensing
scenarios
Held the way an investor would hold them:
Downside (20%). Reddit actually drops Google. We assume no damage to the advertising or search-referral business from doing so, a clean break on the data contract alone. OpenAI and any smaller partners carry on at roughly what they pay today. Licensing lands at $80M, below where it is now.
Base (50%). The renewals happen, on better terms but still as fixed contracts. Google reprices upward on a usage model, OpenAI expands with its own growth, and one further partner of scale signs. Licensing reaches $270M.
Upside (30%). One partner concludes that continuous access to human conversation at Reddit’s scale is genuinely scarce, and signs an exclusive deal at roughly 10x the current Google fee, about $600M a year. Exclusivity is the mechanism: it is worth $600M to one buyer precisely because it denies the data to the others, which is why the remaining counterparties fall to zero in this case rather than adding on top.
The asymmetry is the whole point. The downside is bounded, with Reddit keeping OpenAI and landing modestly below today. The upside is not symmetric with it: the same asset, in a world where AI data licensing becomes a real and contested market, is worth several times more. That distance is why a single contract headline moves the stock the way it does.
A sum-of-the-parts view
Valuing the two businesses separately, on FY2027E:
| Advertising | ||||
| FY2027E total revenue (consensus) | 4,263 | |||
| (×) Advertising revenue share (broker est.)⁵ | 96.0% | |||
| (×) EBITDA margin (consensus, Reddit whole-co) | 45.6% | |||
| FY2027E advertising EBITDA | 1,866 | |||
| (×) '27E EBITDA multiple (Reddit whole-co, current) | 16.2× | |||
| AAdvertising enterprise value | 30,231 | |||
| Data licensing | Downside | Base | Upside | Prob-wtd |
| FY2027E licensing revenue | 80 | 270 | 600 | 291 |
| (×) EBITDA margin (Compound est.) | 75% | 75% | 75% | 75% |
| FY2027E licensing EBITDA | 60 | 203 | 450 | 218 |
| (×) '27E EV / EBITDA multiple⁶ | 10.0× | 15.0× | 22.0× | 17.0× |
| BLicensing enterprise value | 600 | 3,038 | 9,900 | 3,701 |
| Equity bridge | Downside | Base | Upside | Prob-wtd |
| AAdvertising EV | 30,231 | 30,231 | 30,231 | 30,231 |
| BLicensing EV | 600 | 3,038 | 9,900 | 3,701 |
| Total enterprise value | 30,831 | 33,268 | 40,131 | 33,931 |
| (+) Cash & investments (3/31/2026) | 2,771 | 2,771 | 2,771 | 2,771 |
| (−) Debt (3/31/2026) | — | — | — | — |
| Equity value | 33,602 | 36,039 | 42,902 | 36,702 |
| (÷) Shares outstanding (M, 3/31/2026) | 202.5 | 202.5 | 202.5 | 202.5 |
| Implied share price | $165.93 | $177.98 | $211.86 | $181.25 |
| vs. $168.78 close (7/23) | (1.7%) | +5.5% | +25.5% | +7.4% |
The advertising business carries the valuation. It contributes roughly $30.2B of enterprise value in every case, because nothing in the licensing negotiation touches it.
Licensing is the swing factor, and it swings hard, from $0.6B in the downside to $9.9B in the upside. On a probability-weighted basis it is worth about $3.7B, or $18 per share, roughly a tenth of the market capitalisation.
The implied share prices run from $165.93 in the downside to $211.86 in the upside, against a $168.78 close. The probability-weighted outcome is $181.25, about 7% above the current price and below the Street’s $230 target.6
Today’s price sits between our downside and base cases. That is a defensible place for it to trade ahead of a binary event: the market is neither underwriting Reddit’s data as a scarce, contested asset nor writing it off. Which of those it becomes is not something a model settles. It is something the renewal will.
The bigger question: how much pricing power does Reddit have?
Reddit’s licensing revenue has held roughly flat for two years while demand for the thing it sells has risen sharply. That is not what a functioning market looks like. It is what a market with two buyers looks like.
The renewal is really a test of pricing power. With essentially two buyers for its data, Reddit’s leverage is unproven, and everything above the base case depends on that changing: on human conversation at scale becoming a priced, contested input to AI rather than a cheap one, on a third and fourth bidder appearing, on continuous access being treated as the scarce asset it arguably is. That is what makes a contract worth under 2% of revenue the most-watched line on Reddit’s calendar this year. It is the first real instance of price discovery for this kind of data.
Whichever way it breaks, it will tell us something that reaches well beyond Reddit: what, exactly, the open web’s accumulated human judgment is worth to LLMs, and how it will be priced.
If you would like to play with the inputs, here is the model: Reddit AI licensing valuation.
Notes
- Citation share is from Semrush (June 2025), based on roughly 150,000 citations sampled across major AI platforms. The 44% figure is Reddit’s share of social-platform citations inside Google AI Overviews (Tinuiti, Q1 2026) and is not comparable to the ~40% all-domain aggregate.
- Contract values are not disclosed by Reddit. The ~$60M Google figure is press-reported and appears in no filing; the ~$80M OpenAI figure is implied, as total licensing revenue less the reported Google fee. Scenario figures are illustrative constructions, not forecasts.
- Reddit revenue grew from $392M in Q1 2025 to $663M in Q1 2026, per company filings; advertising is roughly 94% of revenue. The ~10% share-price move is measured from the session before the Google reports to the 23 July close.
- Most-visited-site ranking and monthly visits per Similarweb, May 2026.
- Segments. Segment revenue is reported; segment EBITDA and margins are our estimates. FY2027E ties to Street consensus revenue of $4,263M, with licensing set to the base case and advertising taken as the residual; the 96% advertising mix is a broker model estimate for FY2027E. Licensing contribution margin is assumed at 75% (the content already exists; incremental cost is API infrastructure).
- Valuation. Advertising is valued at 16.2x FY2027E EBITDA, Reddit’s own current whole-company multiple. We use it deliberately to reflect Reddit’s premium to advertising peers given its superior growth and margin profile, and because we take almost all of Reddit’s present-day value to be the advertising business. Licensing is valued at 15.0x in the base case, anchored to the ~16.7x FY2027E median of public data and IP-licensing peers (Verisk, MSCI, S&P Global), with 10.0x in the downside and 22.0x in the upside; the probability-weighted 17.0x is an output, not an input. Cash of $2,771M, nil debt, and a 202.5M share count are as of 31 March 2026, the last reported quarter. Market data is the 23 July 2026 close.
Disclosure: the author may hold a position in the securities discussed. This piece is analysis, not investment advice.
