RDDT 12.97X P/S Suggests Premium Valuation: Should You Buy the Stock?

Reddit RDDT shares are currently trading at a premium, as suggested by the Value Score of F. The stock is trading at a premium, with a forward 12-month Price/Sales (P/S) of 12.97X compared with the Zacks Computer and Technology sector’s 6.75X and the Zacks Internet - Software industry’s 4.95X. 

The company is also trading at a premium compared to its closest peer, including Pinterest PINS, Meta Platforms META and Snap SNAP, which are currently trading at a forward 12-month Price/Sales of 3.88X, 6.88X, and 2.13X, respectively.

Price/Sales (F12M)

The company’s shares have rallied 19.1% in the year-to-date period, underperforming the broader Zacks Computer & Technology sector’s rise of 24.2%. The underperformance can be attributed to a challenging macroeconomic environment, including elevated tariffs, which may reduce discretionary ad spending.

RDDT Tops Industry on User Growth and ARPU Strength

Despite a challenging macroeconomic environment and tariff-related uncertainties, RDDT’s shares outperformed the Zacks Internet - Software industry, which has increased 7.7% in the year-to-date period. 

RDDT Stock's Performance

The company has also outperformed its peers like Pinterest, META Platforms and Snap, which are also expanding their footprints into advertising to compete in the rapidly growing digital ad market. While both Pinterest and Snap shares have lost 6.6% and 23.7%, Meta Platforms shares have gained 6.2% over the same time frame.

The outperformance can be attributed to the company’s strong user engagement, including rising daily and weekly active users, gains in Average Revenue Per User (ARPU), and the expansion of advertiser tools such as Dynamic Product Ads (DPA), Reddit Pixel and CAPI.

In the third quarter of 2025, ARPU grew 41% year over year to $5.04, indicating that portfolio expansions are driving higher monetization per user. In the reported quarter, RDDT reported 116 million daily active users and 444 million weekly active users, both increasing 20% year over year.

RDDT Benefits From Expanding Portfolio

Reddit’s expanding portfolio has been a major growth driver.  The company’s unique ad solutions, such as DPA and interactive ad formats, are driving advertiser adoption and delivering strong performance outcomes. In the third quarter of 2025, Advertising revenues surged 74% year over year to $549 million, driven by both existing advertisers deepening their investments and a 75% rise in the active advertiser count.

International growth has also been a significant focus for Reddit’s portfolio expansion. The company implemented machine translation in 30 languages and developed localized content frameworks to cater to specific interests in countries like India, Brazil, Germany, and France. In the third quarter of 2025, International ARPU rose 39% year over year to $1.84.

Reddit is expanding its search-led engagement through Reddit Answers, which has been a major growth driver. In the third quarter of 2025, over 75 million people searched on Reddit weekly, showcasing the growing popularity of this feature. 

The company has integrated Reddit Answers into its core search functionality, increasing visibility across conversations and expanding its reach to non-English languages, including Spanish, German, Italian, French and Portuguese.

Reddit Expands Its Reach With AI-Powered Tools

Reddit’s investment in AI-powered tools has further strengthened its portfolio by improving user experience and community moderation. In September 2025, Reddit launched Reddit Pro tools for publishers. 

This new set of features aims to help media outlets share, track and engage with their content easily. It targets Reddit’s 110 million daily active users. The update includes article insights, automatic RSS imports and AI-powered community recommendations. It also offers a better in-app link viewing experience and discussion tools.

Reddit Earnings Estimates Show Upward Trend

RDDT’s expanding portfolio and rising user engagements are expected to drive the company’s top-line growth.

For the fourth quarter of 2025, RDDT expects revenues between $655 million and $665 million.

For the fourth quarter of 2025, the Zacks Consensus Estimate for revenues is pegged at $668.07 million, indicating year-over-year growth of 56.20%. 

The consensus mark for earnings is pegged at 98 cents per share, which has increased 22.5% over the past 30 days, indicating year-over-year growth of 172.22%.

Reddit Inc. Price and Consensus

Reddit Inc. price-consensus-chart | Reddit Inc. Quote

Conclusion

Reddit’s prospects 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.

RRDT stock currently sports a Zacks Rank #1 (Strong Buy) and has a Growth Score of A, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. 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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