Reddit Stock Rallies 36% in One Year: Should You Buy, Hold, or Sell?

Reddit RDDT shares have gained 35.9% in the trailing 12-month period, outperforming the broader Zacks Computer & Technology sector’s rise of 22.1%. The Zacks Internet - Software industry increased 0.8% in 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 increased 41% year over year to $5.04, indicating that portfolio expansions are driving higher monetization per user. The company is also benefiting from its investment in AI-powered tools, which are driving the company’s user engagement and ad revenue. In the third quarter of 2025, RDDT reported 116 million daily active users and 444 million weekly active users, both increasing 20% year over year.RDDT Stock's PerformanceImage Source: Zacks Investment ResearchReddit Benefits From Expanding Ad DemandReddit is benefiting from its strong focus on enhancing user-friendly features, which is driving significant growth in user engagement and ad revenue. In the third quarter of 2025, Advertising revenues surged 74% year over year to $549 million.Further expanding its portfolio, Reddit recently announced the beta launch of Max campaigns. This AI-powered automated ad solution optimizes targeting, creative, placements, and budget in real time to improve performance and reduce manual effort. Using Reddit Community Intelligence, Max campaigns offer unique audience insights, including Top Audience Personas, which help advertisers understand who engages with their campaigns and what content resonates. Early testers experienced up to 27% more conversions and lower costs, showing both efficiency and effectiveness.Reddit Earnings Estimates Show Upward TrendRDDT’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. The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $668.52 million, indicating year-over-year growth of 56.30%. For the fourth quarter, the consensus mark for earnings is pegged at 97 cents per share, unchanged over the past 30 days. This indicates year-over-year growth of 169.44%.For 2025, the Zacks Consensus Estimate for revenues is pegged at $2.15 billion, indicating year-over-year growth of 65.01%. The consensus mark for earnings is pegged at $2.35 per share, unchanged over the past 30 days. This indicates year-over-year growth of 170.57%.Reddit Inc. Price and Consensus Reddit Inc. price-consensus-chart | Reddit Inc. QuoteRDDT Faces Stiff CompetitionDespite an expanding portfolio and rising user engagements, RDDT is facing stiff competition from competitors like Snap SNAP, Meta Platforms META and Pinterest PINS, which are also expanding into advertising to compete in the rapidly growing digital ad market. Snap is benefiting from strong revenue growth driven by improved advertising demand and the expansion of direct revenue streams. In the third quarter of 2025, Snap’s advertising revenues rose 5% year over year to $1.32 billion, driven primarily by growth in Direct Response (DR) advertising revenue, which increased 8% year over year. Growth in DR advertising revenue was primarily driven by strong demand for Pixel Purchase and App Purchase optimizations.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 third quarter of 2025, Meta Platform’s advertising revenues increased 25.6% year over year to $50.08 billion and accounted for 97.7% of third-quarter revenues. At cc, revenues increased 25% year over year.Pinterest is expanding its portfolio through acquisition. In December 2025, Pinterest announced that it had inked a definitive agreement to acquire tvScientific, a firm specializing in a connected TV (CTV) advertising platform. The buyout will enable Pinterest to bring its advertising business to TV screens, allowing advertisers to compare the impact of TV ads on their marketing campaigns.RDDT Stock OvervaluedReddit stock is currently 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 15.19, higher than its median of 14.24 and the broader Zacks Computer & Technology sector’s 7.41.RDDT's ValuationImage Source: Zacks Investment ResearchConclusionReddit’s prospects benefit from an expanding advertising business, an expanding clientele and an improved user experience with upgraded search and discovery features.However, 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. 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(RDDT): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks