Reddit (RDDT): Evaluating Valuation as Ad Growth and AI-Fueled Partnerships Lift Analyst Outlooks

Reddit (NYSE:RDDT) has been getting plenty of attention after ramping up its advertising business and securing new AI-driven partnerships. The company’s rapid jump in active advertisers and user growth is making investors take a closer look.

See our latest analysis for Reddit.

Reddit's share price has delivered a 163% total shareholder return over the past year, far outpacing most tech peers. After a bumpy month, momentum has clearly rebounded, with a 6.7% gain just in the last day and double-digit gains this week. Renewed optimism around advertising growth, high-profile AI partnerships, and a fresh wave of positive news are fueling investor enthusiasm as the company continues its transformation.

If Reddit's recent surge has you thinking about what else could be taking off, it might be time to discover See the full list for free.

With so much going right for Reddit, investors are left to wonder, is this just the beginning or is all the good news already baked into the stock price? Is there a real buying opportunity here, or has the market already priced in this future growth?

Most Popular Narrative: 3.7% Undervalued

Reddit's most widely followed valuation narrative puts fair value at $222.38, slightly above the last close price of $214.20. This perspective is built on ambitious revenue, earnings, and margin expansion assumptions, setting a high bar for the business to meet over the next several years.

As digital advertising budgets increasingly prioritize highly engaged, niche communities, Reddit's 84% YoY ad revenue growth, broadening advertiser base, and introduction of formats like Dynamic Product Ads position it to capture a greater share of this secular trend. This could potentially lift revenue and net margins over time, especially as ad stack improvements enhance advertiser ROI.

Read the complete narrative.

Want to know the secret behind this bold valuation? The narrative's scenario relies on unusually rapid user growth, aggressive profit targets, and a future multiple typically reserved for industry leaders. Find out what financial forecasts are fueling this optimism. See the full calculation that drives this popular fair value.

Result: Fair Value of $222.38 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, investors should note that slowing engagement or setbacks in international community growth could challenge Reddit’s bullish narrative in the future.

Find out about the key risks to this Reddit narrative.

Another View: A Look Through Multiples

While the popular narrative calls Reddit 3.7% undervalued, a quick check on its price-to-sales ratio paints a much more expensive picture. Reddit trades at 24 times sales, which is far higher than the US industry average of 1.4 and its peer average of 3.4. The so-called fair ratio, a level the market could move toward, sits even lower at just 11.6 times sales. This significant gap could indicate real valuation risk for anyone entering at today’s price, so are the market’s expectations running too hot?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Reddit Narrative

If you have your own take on Reddit's outlook or want to dig deeper into the numbers, you can quickly build your own view and see how it stacks up. All of this can be done in just a few minutes. Do it your way

A good starting point is our analysis highlighting 3 key rewards investors are optimistic about regarding Reddit.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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