Should You Hold on to RDDT Stock Despite Its 15% Dip in Three Months?

Reddit RDDT shares have plunged 14.7% in the past three months, underperforming the broader Zacks Computer & Technology sector’s 4.4% decline. The Zacks Internet - Software industry has increased 6.4% in the same time frame.

The company shares have also underperformed its peers, which include Pinterest PINS, META Platforms META and Snap SNAP. These companies are expanding their footprint in the digital advertising market. Shares of Pinterest have gained 2.8%, while Meta Platforms and Snap have lost 7.2% and 6.7%, respectively, in the trailing three-month period.

The decline can be attributed to choppy and declining search referral traffic, particularly late in the second quarter of 2026, which led to a slight decrease in daily active users and heightened volatility. Low visibility into external search trends also remains a headwind. Challenging macroeconomic uncertainties and stiff competition in the digital advertising market remain concerns.

RDDT Stock Performance

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Despite the headwinds, Reddit’s expanding advertising portfolio, 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, Reddit Pixel and CAPI have been key catalysts.

RDDT Benefits From Strong Advertising Portfolio

Reddit is benefiting from a unique position in the digital advertising landscape. In the second quarter of 2026, Reddit achieved its eighth consecutive quarter of more than 60% revenue growth, with advertising revenues rising 64% year over year to $762 million. The platform now reaches more than 0.5 billion people weekly, including more than 130 million daily users. New app user retention improved 50% year over year, indicating that product enhancements are translating into deeper engagement and higher-quality user growth.

Reddit’s innovation in its ad stack has been a major growth driver. The launch and rapid adoption of Reddit Max, an AI-driven suite for ad automation and optimization, has delivered significant results. Advertiser usage of Max grew more than 60% from the first quarter, and revenues from Max campaigns increased by more than 150%. Features like tailored creatives and dynamic product ads are helping brands achieve better outcomes, such as Lenovo’s 40% higher purchase value with Max campaigns compared to standard campaigns.

The company is also expanding its advertiser base and ecosystem, making it easier for businesses of all sizes to succeed on Reddit. Scaled channel revenues, which include mid-market and SMBs, doubled year over year, and active advertisers grew more than 70% in the second quarter of 2026. Integrations with platforms like Shopify and a growing ads API ecosystem are streamlining onboarding and campaign management, further fueling Reddit’s commercial momentum.

Reddit Gains From Strong User Growth

Reddit gains from robust user growth, positioning itself as a formidable player in the digital advertising space. In the second quarter of 2026, Reddit's daily active uniques (DAUq) reached 130.3 million, marking an 18% year-over-year increase, while weekly active uniques (WAUq) increased to 514.6 million, up 24%. International DAUq rose 28%, outpacing U.S. growth at 6%, and international WAUq rose 35%, signaling strong global momentum. Growing engagement is translating into stronger monetization. In the second quarter of 2026, Global average revenue per unique (ARPU) jumped 36% year over year to $6.18. U.S. ARPU surged 51% to $11.85, while international ARPU increased 31% to $2.26. 

Reddit is benefiting from successful product innovation and user engagement strategies. The company’s focus on improving the experience for new users, particularly through updated feed models and easier posting mechanisms, has led to a 50% year-over-year increase in new app user retention. Features like video in comments and interactive games have expanded engagement opportunities, while efforts to convert web users to app users have resulted in higher retention and more valuable user cohorts.

Earnings Estimates for Reddit Show Upward Trend

RDDT’s expanding portfolio and rising user engagement are expected to drive the company’s top-line growth.

For the third quarter of 2026, management expects revenues between $860 million and $870 million, representing 47% to 49% year-over-year growth. The midpoint implies about 48% year-over-year growth. The Zacks Consensus Estimate for third-quarter revenues is pegged at $886.87 million, indicating year-over-year growth of 51.62%. 

For the third quarter, the consensus mark for earnings is pegged at $1.33 per share, which has increased 2.3% over the past 30 days. This implies year-over-year growth of 66.25%.

Reddit Inc. Price and Consensus

Reddit Inc. price-consensus-chart | Reddit Inc. Quote

RDDT Stock Is Overvalued

Reddit stock is currently trading at a premium, as suggested by the Value Score of D.

In terms of the forward 12-month Price/Sales ratio, RDDT is trading at 6.75X, higher than the broader Zacks Computer & Technology sector’s 6.12X, Pinterest’s 2.24X, Meta Platforms’ 5.1X and Snap’s 1.25X.

RDDT Valuation

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Conclusion

Reddit’s prospects benefit from strong user engagement and an expanding advertising portfolio. However, the company faces search traffic volatility, intense competition in the digital advertising space and a stretched valuation, which could limit near-term upside.

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. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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