Reddit’s (RDDT) Valuation Reset Creates Opportunity. Yet Timing Still Matters

Reddit’s (RDDT) valuation reset, with the stock down nearly 50% this year, is beginning to create a more attractive setup. The decline reflects a reset in growth expectations following a period of strong optimism largely driven by the artificial intelligence (AI) boom. However, timing still matters. While operational fundamentals continue to improve — particularly in engagement and monetization — the stock may need to show clearer signs of stabilization before taking a more aggressive position.

Overall, I see the current setup as an opportunity for investors with a longer-term horizon, maintaining a constructive view on the stock and a Buy rating.

The AI Narrative that Drove the Rally

Reddit has been a hugely disappointing stock year-to-date, losing more than 48% of its value and ranking among the worst performers among its peers, second only to Snap (SNAP).

Yet, in reality, this decline looks more like a “correction” when we zoom out and look at Reddit’s performance since its initial public offering (IPO) in March 2024. Shares are still up around 169% since then, at the time of writing. It’s also interesting that it coincided with the AI boom, with Reddit widely perceived as one of the social media platforms best positioned to benefit from those tailwinds.

That’s because Reddit is essentially “raw gold” for AI data. Unlike its peers, the platform’s content is long-form, text-based, conversational, filled with real questions and answers, and highly segmented by topic. This helped build the narrative that Reddit could monetize access to its user data through partnerships or licensing deals with AI companies. So at the core, the AI narrative fits very naturally into the bullish thesis.

What the Numbers Actually Say

Setting the narrative aside and focusing on the facts, from an operational standpoint, Reddit’s bull case has been heavily anchored in two key metrics: Daily Active Uniques (DAUq) — essentially user growth; and Average Revenue Per User (ARPU) — monetization per user. To be fair, both have performed very well over the past two years.

The chart below shows the evolution of Reddit’s DAUq, which increased from roughly 70 million in late 2023 to 121.4 million, as reported in Q4 25. The most notable acceleration came in 2024, as Reddit entered the AI-driven traffic cycle, further reinforcing its role as a discovery layer for real-user content.

ARPU has also improved, but still shows a clear geographic gap. The U.S. monetizes nearly twice as much as the global ARPU — $10.79 vs. $5.98, respectively, suggesting that monetization is still far from reaching its ceiling. This also implies a long runway for revenue expansion, even without relying solely on user growth.

For comparison, Pinterest (PINS) generates about $9.41 in ARPU in the U.S. and Canada, while Snap reaches around $10.88 in North America. Both are well below the $16.56 average revenue per person (ARPP) reported by Meta Platforms (META). That said, this isn’t a perfect comparison, as Meta benefits from much more sophisticated targeting and a tightly integrated ecosystem across Facebook, Instagram, and WhatsApp.

So while ARPU expansion remains a key lever, assuming convergence toward Meta-like levels may be overly optimistic.

Reddit’s Multiple Has Collapsed, Not the Business Fundamentals

In my view, the problem is that Reddit was once priced at a multiple that implied it could actually achieve Meta-like monetization. The stock traded at around 62x forward earnings at its all-time high last September, and now it trades at just 18.5x.

Of course, when a stock trades at such elevated levels as RDDT did at the beginning of this year, at around 54x forward earnings, the market expects the company to consistently exceed expectations. Also, the simple fact that DAUq grew 19% year-over-year in Q4 25 — down from 39% year-over-year growth in 2024 — even with U.S. ARPU accelerating to 53% year-over-year in Q4 25 versus 28% in the same period last year, is enough to take some steam out of the hyper-growth narrative and justify a lower multiple.

If we focus on the long-term, three- to five-year earnings-per-share (EPS) outlook implied by consensus — which points to a whopping 37% EPS CAGR — Reddit is currently trading at a PEG of around 0.5. That suggests the stock may look very cheap relative to its growth — but only if that growth actually holds up.

From a technical standpoint, before taking a more meaningful long position, I would at least wait for the 20-day moving average to be reclaimed and hold for a few days as a sign that selling pressure may be easing. Ideally, I would also want to see the 50-day moving average stop trending downward, so the “falling knife” scenario doesn’t continue before a clearer entry point begins to form.

Is RDDT a Buy, According to Wall Street Analysts?

Wall Street’s view on Reddit shares is somewhat mixed right now, though still leaning bullish. Out of 22 ratings, 13 are Buy and nine are Hold, resulting in a Moderate Buy consensus. The average price target stands at $235.77, implying a fairly meaningful upside of about 75.10% from current levels.

A Buy, with Some Patience

I would say that for those who had reservations about the Reddit thesis based on valuation limiting the near-term risk-reward, that concern now seems largely behind us. I believe the current window presents an attractive opportunity to buy a business that still has meaningful long-term monetization upside and is growing at a solid pace.

That being said, I would still wait for a brief consolidation in the short-term moving averages as a stronger signal that selling pressure is easing and a base may be forming — mainly to avoid unnecessary short-term pain. However, for those with a longer-term horizon, I continue to see this as a good moment to build a position. All things considered, Reddit is a Buy in my view.