Should You Buy, Sell, or Hold Reddit Stock Before Q3 Earnings Release?

Reddit RDDT is set to release its third-quarter 2025 results on Oct. 30.

The company expects third-quarter 2025 revenues between $535 and $545 million, indicating 54% to 56% year-over-year revenue growth, with a midpoint of 55%. 

For the third quarter of 2025, the Zacks Consensus Estimate for revenues is pegged at $549.69 million, indicating year-over-year growth of 57.80%. 

The consensus mark for earnings is pegged at 52 cents per share, which has remained unchanged over the past 30 days, indicating year-over-year growth of 225%.

Reddit Inc. Price and EPS Surprise

Reddit Inc. price-eps-surprise | Reddit Inc. Quote

RDDT’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 261.89%.

Let’s see how things have shaped up for this announcement.

Factors Likely to Have Influenced Q3 Performance

Reddit’s third-quarter performance is expected to have benefited from increased ad sales and the company’s growing AI initiatives.

Reddit’s advertising business is expected to have benefited from continued innovation in ad products and solutions in the to-be-reported quarter. Its focus on automation, dynamic product ads and tools like Reddit Insights and Community Add-Ons is set to improve advertiser performance and attract more advertisers.

RDDT is also expanding search-led engagement through Reddit Answers. In the second quarter of 2025, Reddit Answers experienced significant growth, with the number of weekly users increasing from 1 million to 6 million. Moreover, improving impressions and a rise in pricing are driven by Reddit’s investments in performance and targeting in the middle and lower funnel, which is expected to have driven ad revenues in the third quarter of 2025.

International expansion remains a key growth driver for Reddit. With machine translation available in 23 languages, the platform is reaching new markets in Asia, Europe and Latin America. This is expected to have driven further user engagement and revenues in the to-be-reported quarter.

However, a challenging macroeconomic environment, including elevated tariffs, may reduce discretionary ad spending. Intense competition, along with advertiser concentration risks, poses challenges to RDDT’s near-term prospects.

RDDT Trading at a Premium

RDDT shares have surged 34.2% in the year-to-date period, outperforming the Zacks Computer & Technology sector’s return of 25.9% and the Zacks Internet - Software industry’s 19.7% rally.

The company has also outperformed its peers like Meta Platforms META, Pinterest PINS, and Snap SNAP, which are also expanding their footprints into advertising to compete in the rapidly growing digital ad market. While Meta Platforms and Pinterest shares have gained 28.3% and 21.5%, Snap shares have lost 26.5% in the year-to-date period.

RDDT Stock's Performance

However, the Value Score of F suggests a stretched valuation for RDDT at the moment, which makes it a risky bet for risk-averse investors.

RDDT stock is trading at a premium with a forward 12-month Price/Sales of 15.46X compared with the industry’s 5.63X, Meta Platforms’ 8.49X, Pinterest’s 5.06X, and Snap’s 2.08X.

Price/Sales (F12M)

Reddit Benefits From Expanding Portfolio

Reddit’s expanding portfolio has been a major growth driver. In the second quarter of 2025, ARPU grew 47% year over year to $4.53, indicating that portfolio expansions are driving higher monetization per user.

Key drivers include the adoption of Dynamic Product Ads, which consistently achieve a return on ad spend that is, on average, two times higher than standard conversion campaigns. Reddit’s focus on automation, including the introduction of auto-bidding and integration with third-party tools like Smartly, has made it easier for advertisers to scale and optimize their campaigns. These advancements are likely to have attracted more advertisers, further boosting ARPU.

Further expanding its footprint, in June 2025, Reddit launched its Community Intelligence engine at Cannes Lions, introducing the alpha versions of Reddit Insights and Conversation Summary Add-Ons to help brands extract real-time conversational insights and boost campaign performance.

In September 2025, Reddit launched Reddit Pro tools for publishers. This new suite of free features helps media outlets share, track and engage with their content among Reddit’s more than 110 million daily users. The launch includes article insights, RSS auto-importing, and AI-driven community recommendations. It also offers a better in-app article viewing experience.

Conclusion

Reddit’s prospects are expected to benefit from an expanding advertising business, an expanding clientele, and an improved user experience with upgraded search and discovery features. These factors justify the company’s premium valuation.

Reddit stock currently sports a Zacks Rank #1 (Strong Buy), indicating that investors should accumulate the stock at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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