The rise of Reddit (RDDT) stock since its IPO in March of this year has been remarkable, with the company more than doubling in value since then. My bullish stance on Reddit is rooted in its impressive growth story, particularly its progress in monetizing a user base that has been expanding at a much faster rate than its peers. This growth indicates that Reddit is rapidly gaining market share in the highly competitive social media industry.
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Given Reddit’s success in accelerating both user growth and revenue in a mature and consolidated market, the stock arguably deserves a premium valuation. This aligns with the recent trend of analysts revising their price targets for Reddit upwards over the last month.
A Deep Dive into Reddit’s Business Model
Before diving into the bullish case for Reddit, it’s worth taking a look at the platform’s unique business model. Reddit stands out as one of the most influential social networks, driven by community values. Unlike other platforms, it allows users to engage anonymously, fostering authenticity and attracting a growing user base.
Its user profile also differs from platforms like Meta’s (META) Instagram, which focuses on idealized content. Meanwhile, Reddit fosters unfiltered, authentic conversations that boost user engagement, but these interactions don’t always translate smoothly into advertising income.
Given this challenge, and the fact that nearly all of Reddit’s revenue comes from ads, the company is working to prove to shareholders that the platform has potential beyond just ad revenue. To this end, Reddit has invested heavily in new initiatives aimed at improving ad performance and exploring additional revenue streams. Over the past twelve months, Reddit spent $858.1 million on research and development (R&D) — accounting for about 76% of the company’s total revenues in the same period. Part of this strategy includes data licensing, where companies can pay for access to real-time data from anonymous, public conversations on Reddit via APIs (application programming interfaces).
The Surge in Reddit’s Stock Since Its IPO
Since Reddit’s highly anticipated IPO in March of this year, the company’s bullish thesis has gained momentum, with shares surging triple digits. Much of this success over its first year as a publicly traded company can be attributed to its impressive growth trajectory. In Q3 2024, Reddit reported a 53% year-over-year increase in global weekly active unique users (“WAUq”), reaching around 365 million users.
So, what has fueled this remarkable growth? According to the company’s management, Reddit’s continued investment in R&D has been central to its success. The platform has focused on improving user experience by making content discovery easier, enhancing speed and intelligence, enabling seamless contributions, and simplifying moderation.
However, a simpler explanation might be that it’s difficult for mature social media platforms to generate user growth, given that most people have already tried all the major platforms, leaving few new customers to attract. Yet, Reddit has managed to overcome this challenge by launching initiatives that are expected to increase both its user base and the time users spend on the platform.
Looking at user growth specifically, Reddit’s total daily active users at the end of Q3 stood at 97.2 million, up 47% year-over-year. More notably, Reddit saw a significant increase in the United States, adding 2.7 million daily active users from Q2 to Q3. This growth is much stronger than that of Snap (SNAP) and Pinterest (PINS), which have struggled to grow their daily active users in the U.S. Additionally, Reddit has outperformed Meta Platforms in this area, which has also seen stagnation in user growth.
Progressing Towards Profitability
One key factor that has strengthened my bullish outlook on Reddit is the notable progress the company has made in its bottom line. In 2023, Reddit posted operating losses of $140 million, which represented about 17% of its revenue. However, in its most recent quarter, Q3, the company reversed this trend, reporting an operating profit of $7 million vs. nearly $20 million operating losses in Q3 2023.
Looking ahead, analysts are increasingly optimistic about Reddit’s financial performance. For 2025, the consensus expects EPS of $0.68, followed by a jump to $1.60 in 2026. Over the past three months, nearly all twelve analysts covering Reddit have revised their EPS expectations upward by a significant 16% for 2025 and 14% for 2026. This upward revision is not surprising given the company’s strong revenue and user growth, along with the robust advertising industry in which Reddit operates.
Is Reddit Stock Overvalued after Triple-Digit Gains?
One of the main concerns in my bullish thesis on Reddit is its valuation, especially after the stock has surged by 230% since its IPO. Reddit is currently trading at very high valuation multiples. At present, RDDT is priced at approximately 17x sales and 102x forward EV/EBITDA, indicating that it may not be a bargain at these levels.
What stands out, however, is that since November, Wall Street analysts have been revising their price targets for Reddit aggressively. For example, Morgan Stanley’s Brian Nowak upgraded Reddit to a Buy and raised his price target to $200, up from $70. Similarly, Loop Capital’s Alan Gould increased his target to $180 from $120.
Typically, when a stock like Reddit sees a triple-digit price jump, there’s often skepticism moving forward, as analysts might have been too conservative in their initial forecasts. However, in this case, analysts are still backing the stock, with many significantly raising their price targets and clearly acknowledging they were too cautious. I think this highlights just how challenging it is to accurately price IPOs. Now, with a clearer picture, it’s becoming evident that Reddit may actually deserve a premium compared to the rest of the industry.
Is Reddit a Good Buy?
Following the recent increase in price targets for RDDT stock, Wall Street’s consensus on Reddit is a Moderate Buy. According to TipRanks, out of 16 analysts covering the stock, ten have issued Buy recommendations, five have given Neutral ratings, and one has a Bearish stance. The average price target stands at $116.69, suggesting a potential downside of 25.17% from the current share price.
Conclusion
Reddit’s explosive growth and strong user engagement position the company as a promising player in the social media space, with growth rates significantly outpacing its peers, which supports my Buy rating. The company has also made notable progress on its bottom line, further fueling its bullish momentum.
While Reddit is far from being a “cheap” stock and carries some short-term risk, Wall Street’s overly optimistic forecast revisions suggest that paying a premium for the stock may be justified.
