Reddit (RDDT) is riding strong bullish momentum, fueled by surging revenue growth and fresh profitability tailwinds, pushing the stock up roughly 20% following its Q2 earnings, published last week. However, with a 14-day RSI above 80, the stock appears technically overbought, signaling a potential near-term pullback.
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Despite short-term volatility risks, RDDT looks well-positioned for long-term alpha. For now, I’m maintaining a Neutral stance while keeping it firmly on my watchlist.
Outstanding Q2 Figures Bring Attention to RDDT
Reddit’s Q2 results were nothing short of extraordinary. Revenue rose 78% to $500 million, far exceeding the consensus of $425 million. Advertising revenue, which is roughly 90% of the company’s revenue, was up 84% year-over-year due to new ad targeting techniques and formats.
The company now has a remarkable 110.4 million daily active users, which is up 21% year-over-year, and the fact that revenue growth is expanding so much faster than users goes to show both the quality of these users and the attractiveness of the ecosystem to advertisers. Internationally, the business is growing even faster, with daily active users up by 32% year-over-year (U.S. daily active users were only up by 11%), according to TipRanks data.
We can focus more granularly on how revenue per user is increasing. Consider that average revenue per user globally was up 47% year-over-year, and 59% in the U.S. Ad efficiency is undoubtedly strong and growing—this is fundamental to the company’s long-term growth horizon and the sustainability of strong returns for shareholders.
The main reason that the market was bullish on these results, though, wasn’t top-line growth; it was the company’s sustained profitability of four quarters in a row now. Net income of $89 million, up from a -$10 million loss last year, gave way to EPS (earnings per share) of $0.45, which staggeringly beat the consensus of $0.19. This is a business firing on all cylinders—it’s no wonder the valuation is through the roof.
Roof-Shattering Valuation Puts Reddit in Danger
Reddit currently trades at an enterprise value-to-revenue multiple of 20 and a trailing 12-month P/E ratio of 165, backed by impressive 70% year-over-year revenue growth. In comparison, Meta (META) commands an EV-to-revenue ratio of around 10 and a P/E of 27—though it’s significantly further along in its profitability cycle, with revenue growth closer to 20% annually.
Given Reddit’s rapid top-line expansion and improving profitability, the valuation doesn’t appear overly stretched on an intrinsic basis. However, consensus estimates point to revenue growth moderating to around 30–35% by Fiscal 2026, which will likely lead to a natural compression in valuation multiples like price-to-sales. Still, barring a significant operational misstep—unlikely but not impossible—a sharp price correction seems improbable.
That said, even if Reddit’s current pricing is somewhat justified, there’s little to no margin of safety. User growth has noticeably slowed—21% YoY in Q2 versus 51% a year prior—making sustained average revenue per user (ARPU) from advertisers essential. The platform’s ecosystem must continue to evolve in a way that supports long-term engagement and monetization.
Be Patient with Reddit Stock
With Reddit’s stock trading well above its 50-day and 200-day moving averages—and the RSI firmly in overbought territory—now is not the time to chase momentum.
The smarter move is to wait for a more attractive entry point, potentially in the next month or two during a broader market cooldown or following a less bullish earnings report. For value-focused investors, RDDT remains off the table—there are simply more compelling opportunities available right now, such as Amazon (AMZN).
This is a classic high-risk, high-reward play. If you choose to invest at current levels, consider limiting your position to less than 2% of your portfolio, with full awareness that near-term downside volatility is a real possibility.
What is the Future of RDDT Stock?
On Wall Street, Reddit carries a consensus Moderate Buy rating based on 14 Buys, eight Holds, and one Sell rating over the past three months. RDDT’s average stock price target of $195.77 indicates a ~2% downside potential over the next 12 months.
Clearly, Wall Street’s analysis is similar to mine: RDDT remains a risky proposition, but not without potential for long-term reward. The high estimate of $235 indicates an upside of about 15% in a year, while the low estimate of $75 seems unrealistic to me.
Lateral price movement over the next 12 months appears the most likely outcome, with substantial volatility from here within that horizon.
RDDT is a Good Company, but Not a Good Investment
Reddit is a solid company with strong fundamentals and a unique position in the market, but its current valuation is simply too rich to justify an investment at this stage. I believe it’s wise to step back for now. If I held shares, I’d likely take profits at current levels and consider re-entering if the valuation becomes more compelling. With sideways price action likely over the next 12 months, a Neutral rating feels entirely appropriate.