Cost of Capital — Reddit, Inc.

For a debt-free issuer, the hurdle rate is a bet on beta — and Reddit's sits near 14%

Reddit funds itself almost entirely with equity, so the weighted average cost of capital collapses to the cost of equity. That places the full weight of the estimate on one contested CAPM parameter — beta, currently near 1.9 — and makes the sensitivity, not the point estimate, the real output.

Reddit came to market in March 2024 carrying almost no debt, and has stayed that way. When a company is funded with equity, the weighting machinery of WACC does little work — the debt leg barely registers, and the answer is driven by what shareholders demand.

The risk-free rate is the least controversial input; the 10-year Treasury sits near 4.6%. The equity risk premium is a house convention, clustered around five percent. The variable that moves the answer is beta: a young, heavily retail-traded stock trades well above the market, and small revisions there shift the hurdle rate by more than a point.

"For an unlevered issuer, WACC is not an average of anything — it is the cost of equity wearing a disguise."

The panel at right recomputes the build-up as you move beta and the equity risk premium. The implication for a valuation team is discipline about beta sourcing: a raw regression on a stock this volatile can overshoot, so a peer-derived or Blume-adjusted beta narrows the band. The debt side will not rescue the estimate — there is almost none of it to weight.

SENSITIVITY — WACC (%) BY BETA (DOWN) × EQUITY RISK PREMIUM (ACROSS)

Source: 10-year U.S. Treasury ~4.56% (July 2026); levered beta 1.94 (RDDT trailing, StockAnalysis); ERP ~5.0% (US mature-market convention); Reddit near all-equity balance sheet (total debt ~$21M vs. ~$38B market capitalization). Method: CAPM cost of equity = Rf + β·ERP; WACC ≈ cost of equity given negligible debt; no size premium applied at large-cap. Beta and ERP are interactive. Analytical estimate for discussion; not investment advice.