Reddit Surges 85% in a Year: Is the Stock Still Worth Buying?

Reddit (RDDT Quick QuoteRDDT – Free Report) shares have surged 85.1% in the trailing 12 months, outperforming the broader Zacks Computer & Technology sector’s return of 9.8% and the Zacks Internet – Software industry’s rise of 19.4%.

The company has outperformed its peers Meta Platforms (META Quick QuoteMETA – Free Report) and Snap (SNAP Quick QuoteSNAP – Free Report) . While META shares have returned 24.8%, SNAP shares have declined 15.6% in the trailing 12 months.

The outperformance can be attributed to RDDT’s strong user growth, improved advertising performance across multiple channels, and strong investments in AI-driven tools and machine translation to enhance its global reach and ad solutions.

Can Reddit’s strong user growth and AI-driven investments sustain its outperformance in the competitive advertising market? Let us delve deeper.

RDDT Outperforms Industry, Sector

 

Image Source: Zacks Investment Research

 

RDDT Benefits From Surge in Ad Growth & User Engagement

Reddit’s continued focus on diversifying its advertising solutions and enhancing ad efficiency has emerged as a critical growth driver for its business. 

The advertising business grew 60% year over year to $395 million in the fourth quarter of 2024, driven by higher impressions, more efficient ad placements and expanded conversation placement ads.

Building on this momentum, Reddit introduced advertising products in the fourth quarter of 2024, including the AI-powered Headline Generator and Reddit Pro Trends, which helped businesses uncover real-time insights and grow organically on the platform. These tools enhanced the value that Reddit provides to advertisers, attracting customers and retaining existing ones.

The increased efficiency of RDDT’s advertising solutions was bolstered by significant user growth in the reported quarter. Reddit saw considerable user growth, with daily active users reaching 101.7 million, growing 39% year over year. This includes a 46% rise in international users and a 27% increase in logged-in users.

Reddit Enhances User Engagement With New Tools & Features

RDDT continues to evolve its platform with new features aimed at improving user experience and community engagement.

In March 2025, Reddit introduced tools to enhance user engagement and simplify posting. These include a post check to prevent rule violations, post recovery for the retrieval of removed content, and clear community info on posting requirements. These updates make it easier for users to follow guidelines and engage with communities without the frustration of accidental rule violations.

Additionally, community suggestions help users find the right audience, ensuring that their posts reach the people who will appreciate them most. For better insights, users can now track post-performance, including views and upvotes, which enables them to refine their future posts and connect more effectively with the community.

RDDT’s AI-Driven Partnerships Boost User Experience & Ads

Reddit’s expanding partner base also strengthens its competitive prowess. The company explored new sectors by forming content licensing partnerships.

In February 2025, Reddit partnered with Intercontinental Exchange (ICE Quick QuoteICE – Free Report) to create data and analytics products for the financial industry, using RDDT’s more than 16 billion posts and comments with ICE’s data science and machine learning tools to improve portfolio optimization, trading strategies, due diligence and risk management, while maintaining Reddit’s Data API Terms that restrict commercial use without approval.

Reddit Earnings Estimates Show Upward Trend

For the first quarter of 2025, RDDT expects revenues between $360 million and $370 million. 

For the first quarter of 2025, the Zacks Consensus Estimate for revenues is pegged at $374.53 million, indicating year-over-year growth of 54.15%. The consensus mark for earnings is pegged at 2 cents per share, which has been unchanged in the past 30 days.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

What Should Investors Do With RDDT Stock Now?

We point out that Reddit’s stock is trading at a premium, as suggested by the Value Score of F.

In terms of the forward 12-month Price/Sales ratio, RDDT is trading at 11.58, higher than its median of 9.62 and the industry’s 5.22.

Price/Sales (F12M)

 

Image Source: Zacks Investment Research

 

However, Reddit intends to drive top-line growth and enhance its growth prospects by focusing on expanding its advertising business, increasing its international reach, and improving the user experience with upgraded search and discovery features. This is why we believe the premium valuation is justified.

Reddit sports a Zacks Rank #1 (Strong Buy) at present, which implies that it will be prudent to accumulate the stock now. You can see the complete list of today’s Zacks #1 Rank stocks here.