Reddit Stock Plunges 27% Year to Date: Should You Avoid RDDT for Now?

Reddit RDDT shares have plunged 26.5% in the year-to-date period, underperforming the broader Zacks Computer & Technology sector’s decline of 11% and the Zacks Internet - Software industry’s rise of 5.8%.

The underperformance can be attributed to the worsening macroeconomic environment following U.S. President Donald Trump’s decision to levy tariffs on trading partners, including China and Mexico. Intense competition from other social media platforms is consistently affecting user engagement and market share in advertising.

Reddit experienced some volatility due to a periodic algorithm change by Google Search in the fourth quarter of 2024. This triggered a fluctuation in traffic, primarily affecting logged-out users.

YTD RDDT Stock Performance

However, RDDT is benefiting from 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. Advertising accounted for 91.2% of Reddit’s 2024 revenues, which totaled $1.3 billion.

RDDT’s Expanding Portfolio Aids Prospect

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

The company’s expanding advertising product portfolio has been noteworthy. Its products, including the AI-powered Headline Generator and Reddit Pro Trends, help 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.

RDDT also 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, a post-recovery for retrieving removed content, and clear community information on posting requirements. These updates make it easier for users to follow guidelines and engage with communities without the frustration of accidental rule violations.

RDDT’s Benefits From Expanding Partnerships

Reddit’s expanding partner base also strengthens its competitive prowess. Reddit’s partnership with Alphabet GOOGL boosts content discovery and community engagement by providing access to Reddit’s Data API. This enhances Google’s products and supports AI advancements, benefiting both companies.

Building on this, in December 2024, Reddit announced the testing of “Reddit Answers,” an AI-powered chatbot leveraging models from Reddit, Google, and OpenAI to provide users in the United States with curated summaries, links to discussions, and community recommendations. These are initially available on the web and iOS, with plans for a broader global rollout and language support.

RDDT also explored new sectors by forming content licensing partnerships with Intercontinental Exchange ICE. 

In February 2025, Reddit partnered with Intercontinental Exchange to create data and analytics products for the financial industry, using RDDT’s more than 16 billion posts and comments with Intercontinental Exchange’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. 

Reddit Inc. Stock Price and Consensus

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

For the first quarter of 2025, the Zacks Consensus Estimate for revenues is pegged at $327.70 million, indicating year-over-year growth of 53.40%. The consensus mark for earnings is pegged at 2 cents per share, which has increased by a penny in the past 30 days. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

RDDT Suffers From Stiff Competition

Despite RDDT’s expanding advertising business and robust partnerships, the company is suffering from intense competition from Snap SNAP, which is expanding into advertising to compete in the rapidly growing digital ad market. 

Strengthening its portfolio, SNAP introduced Sponsored AI Lenses, a new ad format powered by Generative AI, in April 2025. This format allows brands to engage users with personalized, interactive augmented reality experiences. 

Further expanding its portfolio, Snapchat’s new conversion tracking tool, Snap Pixel, is also gaining traction. The tool helps advertisers’ measure traffic growth on their websites. SNAP’s growing ad offerings and advanced features are attracting both advertisers and users, challenging Reddit’s dominance.

Stay Away From RDDT Stock

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 10.98, higher than the broader Zacks Computer & Technology sector’s 5.59.

Price/Sales Ratio (Forward 12 Months)

RDDT currently carries a Zacks Rank #5 (Strong Sell), which implies that investors should stay away from investing in this stock at present.

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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