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

Core Insights - Reddit (RDDT) shares have increased by 35.9% over the past 12 months, outperforming the Zacks Computer & Technology sector's growth of 22.1% and the Zacks Internet - Software industry's increase of 0.8% [1][7] User Engagement and Revenue Growth - In Q3 2025, Average Revenue Per User (ARPU) rose by 41% year over year to $5.04, indicating effective portfolio expansions driving higher monetization [2] - Reddit reported 116 million daily active users and 444 million weekly active users in Q3 2025, both reflecting a 20% year-over-year increase [2] - Advertising revenues surged by 74% year over year to $549 million in Q3 2025, driven by enhanced user engagement and AI tools [5] Advertising Innovations - Reddit launched the beta version of Max campaigns, an AI-powered automated ad solution that optimizes targeting, creative, placements, and budget in real time [6] - Early testers of Max campaigns experienced up to 27% more conversions and lower costs, demonstrating both efficiency and effectiveness [8] Financial Projections - For Q4 2025, Reddit expects revenues between $655 million and $665 million, with the Zacks Consensus Estimate at $668.52 million, indicating a year-over-year growth of 56.30% [9] - The consensus estimate for Q4 earnings is 97 cents per share, reflecting a year-over-year growth of 169.44% [10] - For the full year 2025, the Zacks Consensus Estimate for revenues is $2.15 billion, indicating a year-over-year growth of 65.01% [10] Competitive Landscape - Reddit faces stiff competition from companies like Snap, Meta Platforms, and Pinterest, all of which are expanding their advertising capabilities in the growing digital ad market [11] - Snap's advertising revenues increased by 5% year over year to $1.32 billion in Q3 2025, while Meta's advertising revenues rose by 25.6% year over year to $50.08 billion [12][13] - Pinterest is expanding its advertising portfolio through acquisitions, such as its agreement to acquire tvScientific, enhancing its advertising capabilities [14] Valuation Concerns - Reddit stock is currently trading at a premium, with a forward 12-month Price/Sales ratio of 15.19, higher than its median of 14.24 and the broader sector's 7.41 [15] - The company has a Zacks Rank 3 (Hold), suggesting a cautious approach to accumulating the stock [18]