RDDT Stock Down 39% in the Past Three Months: Should You Hold or Fold?

Reddit RDDT shares have plunged 39.1% in the past three months, underperforming the broader Zacks Computer & Technology sector’s 4.8% decline. The Zacks Internet - Software industry has decreased 12% in the same time frame.

The underperformance can be attributed to a challenging macroeconomic environment, including elevated tariffs, which may reduce discretionary ad spending. Stiff competition also remains a concern.

RDDT Stock's Performance

However, 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 have been noteworthy. In the fourth quarter of 2025, ARPU increased 42% year over year to $5.98, indicating that portfolio expansions are driving higher monetization per user. 

The company is also benefiting from its investment in AI-powered tools, which are increasing user engagement and advertising revenues. In the fourth quarter of 2025, Reddit reported 121 million daily active users, reflecting a 19% year-over-year increase, and 471 million weekly active users, marking 24% year-over-year growth.

RDDT Benefits From Expanding Portfolio

Reddit’s expanding portfolio has been noteworthy. The company’s success in its diversified advertising portfolio has been a key catalyst. In the fourth quarter of 2025, Advertising revenues surged 75% year over year to $690 million.

The introduction of new ad formats like DPA and Reddit Max campaigns has further bolstered advertiser adoption and improved return on ad spend (ROAS). The introduction of DPA has been particularly impactful, with strong performance during key shopping periods like Black Friday and Cyber Monday.  Improvements to DPA’s machine learning models have led to a 75% increase in advertiser ROAS in the fourth quarter of 2025. This development makes Reddit a strong competitor in the shopping ads market.

The company’s expanding search-led engagement through its AI-powered features has been a major growth driver. The introduction of Reddit Answers, a feature that uses community-driven insights to enhance search functionality, has been noteworthy. In the fourth quarter of 2025, Weekly search activity on Reddit increased significantly, with more than 80 million people searching directly on the platform, up from 60 million a year ago. Reddit Answers, the AI-powered search feature, saw growth in queries, increasing from 1 million to 15 million over the year.

Earnings Estimates for Reddit Show Upward Trend

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

For the first quarter of 2026, RDDT expects revenues between $595 million and $605 million. The Zacks Consensus Estimate for first-quarter revenues is pegged at $614.09 million, indicating year-over-year growth of 56.51%. 

For the first quarter, the consensus mark for earnings is pegged at 62 cents per share, which has increased 12.72% in the past 30 days. This implies year-over-year growth of 376.92%.

Reddit Inc. Price and Consensus

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

RDDT Faces Stiff Competition

Despite an expanding portfolio and rising user engagements, RDDT is facing stiff competition from competitors like Snap SNAP, Meta Platforms META, and Pinterest PINS.

Snap is benefiting from strong revenue growth driven by improved advertising demand and the expansion of direct revenue streams. In the fourth quarter, Snap’s total active advertisers jumped 28% year over year, driven in part by simplified onboarding, improved campaign workflows, and increased performance.

Meta Platforms’ focus on integrating AI into its platforms, which include Facebook, WhatsApp, Instagram, Messenger, and Threads, is driving user engagement to boost ad revenues. In the fourth quarter of 2025, Meta Platform’s Advertising revenues increased 24.3% year over year to $58.14 billion and accounted for 97.1% of fourth-quarter revenues. At cc, revenues rose 23% year over year.

Pinterest is benefiting from strong user expansion and higher engagement, with more than 80 billion monthly searches on the platform. Rising adoption of AI-powered ad tools and solid demand from mid-market, SMB, international advertisers and key verticals like retail and financial services are driving Pinterest’s top-line growth.

RDDT Stock Is Overvalued

Reddit stock is currently trading at a premium, as suggested by the Value Score of D.

In terms of the forward 12-month Price/Sales ratio, RDDT is trading at 8.25X, higher than the broader Zacks Computer & Technology sector’s 6.20X.

RDDT's Valuation

Conclusion

Reddit’s prospects benefit from an expanding advertising business, an expanding clientele, and an improved user experience with upgraded search and discovery features.

A challenging macroeconomic environment, including elevated tariffs, may reduce discretionary ad spending. Stretched valuation and stiff competition also remain a concern.

Reddit currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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