Reddit (RDDT) experienced a substantial legal development when a class action lawsuit was filed against it in August 2025, centered on allegedly misleading statements related to Google Search. Despite these challenges, the company reported a significant improvement in its Q2 2025 earnings, with sales jumping to $500 million from $281 million year-over-year, and net income rising to $89 million. Additionally, market optimism about potential rate cuts fueled by recent consumer inflation data likely aided the positive environment, aligning with the broader market gains. These elements contributed to Reddit's impressive 123% price increase over the last quarter.
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Reddit's recent legal challenges and notable Q2 earnings improvement highlight potential areas of impact on its growth narrative. The 123% share price increase last quarter reflects strong investor sentiment amid these developments. However, assessing the company's longer-term performance, its total shareholder return was very large at over 300% over the past year, indicating strong performance beyond the recent quarterly spike. In the broader context, Reddit's stock outperformed the US market's 19.1% return and the Interactive Media and Services industry's 53% return over the past year.
The legal issues could impact Reddit's future revenue and earnings forecasts, depending on the outcome. Such uncertainties, coupled with existing reliance on digital ad revenue, necessitate careful monitoring. Despite these challenges, Reddit's earnings forecast growth of 37.4% annually suggests strong future potential, albeit with risks. The current share price of $259.03 surpasses the consensus price target of $200.00, signaling potential market overvaluation. Nonetheless, given the extensive positive movement, investors might still perceive Reddit's growth outlook favorably, despite its substantial rise and inherent risks.
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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