| Component | Source | Value | Range |
|---|---|---|---|
| Cost of equity (CAPM) | |||
| Risk-free rate (Rf) | 10Y UST · Jun 29 2026 | 4.30% | 3.80 – 4.80% |
| Equity risk premium (ERP) | Damodaran · US implied | 5.00% | 4.5 – 5.5% |
| Beta (5Y monthly) | levered, no debt adj. | 1.55 | 1.30 – 1.80 |
| Cost of equity (Ke) | 12.05% | 10.65 – 14.70% | |
| Cost of debt | |||
| Pre-tax Kd | no rated debt outstanding | n/a | indicative 7.5 – 9.0% |
| Tax rate | marginal | 25% | — |
| After-tax Kd | illustrative if debt added | ~6.0% | 5.6 – 6.8% |
| Capital structure (market value) | |||
| Equity weight | 100.0% | — | — |
| Debt weight | 0.0% | — | — |
| WACC | 12.05% | 10.65 – 14.70% | |
Pure CAPM. Ke = Rf + β · ERP = 4.30 + 1.55 × 5.00 = 12.05%. No debt, no tax shield, no leverage component.
A diversified capital stack provides shock absorption. When ERP rises 100bps, a 50/50 debt-equity firm sees WACC move ~50bps; Reddit moves the full 100bps × beta. The all-equity discount is reflexive — equity prices itself.
RDDT · $182.40MC $32.1B
Cash $2.05B · Debt $0 · Op CF (TTM) $478M · Op margin (Q1 '26) ~14%
| Scenario | D/V | Re-lev β | Ke | Kd (a/t) | WACC |
|---|---|---|---|---|---|
| Current | 0% | 1.55 | 12.05% | — | 12.05% |
| Light leverage | 10% | 1.68 | 12.70% | 5.62% | 11.99% |
| Moderate | 20% | 1.81 | 13.35% | 5.62% | 11.80% |
| SaaS-typical | 30% | 1.94 | 14.00% | 6.00% | 11.60% |
| Mature media | 40% | 2.07 | 14.65% | 6.38% | 11.34% |
| Over-levered | 50% | 2.20 | 15.30% | 7.13% | 11.21% |
Adding debt up to ~40% D/V reduces WACC monotonically — the tax shield benefit outweighs the rising cost of both debt and equity. Beyond that, distress costs and rising Kd dominate.
At 30% leverage, Reddit's WACC drops ~45bps to 11.60% — a meaningful re-rating if applied to a perpetuity-stage DCF.
For a high-multiple, ad-revenue business, the empirical "right" leverage is closer to 15–25%. Meta runs ~6%, Pinterest 0%, Snap ~22%.
| Company | Profile | Beta | Ke | D/V | WACC |
|---|---|---|---|---|---|
| Reddit (RDDT) | Community-driven social | 1.55 | 12.05% | 0% | 12.05% |
| Snap (SNAP) | Visual-first social | 1.45 | 11.55% | 22% | 10.30% |
| Pinterest (PINS) | Discovery / commerce | 1.10 | 9.80% | 0% | 9.80% |
| Meta (META) | Social mega-cap | 1.18 | 10.20% | 6% | 9.95% |
| Google (GOOGL) | Search + ads | 1.05 | 9.55% | 4% | 9.37% |
| Roblox (RBLX) | Platform · gaming | 1.70 | 12.80% | 12% | 11.55% |
Source: Levered betas via Bloomberg 5Y monthly; D/V at market value; Rf = 4.30%, ERP = 5.00% applied uniformly. Pre-tax Kd from public bond yields where applicable.
| WACC | PV explicit (5Y) | PV terminal | EV | Per share |
|---|---|---|---|---|
| 10.0% | $3.5B | $48.0B | $51.5B | $285 |
| 11.0% | $3.4B | $38.6B | $42.0B | $233 |
| 12.05% (base) | $3.3B | $31.7B | $35.0B | $194 |
| 13.0% | $3.2B | $26.4B | $29.6B | $164 |
| 14.0% | $3.1B | $21.9B | $25.0B | $139 |
| 15.0% | $3.0B | $18.3B | $21.3B | $118 |
A 200bps WACC change (12% → 14%) shaves ~28% off the implied per-share value. For an all-equity firm with terminal value >90% of EV, this is amplified — there's no debt cash flow stream to dilute the terminal sensitivity.
The cited base case ($194/sh at 12.05%) sits roughly +6% above the current $182 trading price — but the band from $118 to $285 across reasonable WACC values is wider than most investors will admit.
Assumes 18% revenue CAGR through Year 5, 2.5% terminal growth, terminal EBITDA margin 35%. Illustrative only.
At a 30% target leverage, Reddit's WACC would fall ~45bps. Applied to a DCF, that's +12% to implied EV — roughly $4.2B of value created by a capital-structure decision alone. The math says: lever up.
Reddit's revenue is ad-cyclical, just emerging into profitability. Adding debt service to a Q1 2026 op margin of 14% would consume meaningful share-buyback capacity. Optionality has a value the WACC formula doesn't price.