Reddit Shares Slide 13.7% as TikTok News Shakes Social Media Valuations

If you have been tracking Reddit’s stock recently and wondering whether now is the time to buy, hold, or cash out, you are not alone. Over the past week and month, Reddit shares have dropped a notable 13.7%, erasing some of the heat from its remarkable 24.9% gain year-to-date and the impressive 186.3% return over the past year. That kind of volatility has left more than a few investors scratching their heads and questioning what is really driving those wild swings.

The big story grabbing headlines lately has been the unfolding TikTok saga. On one hand, reports that the newly independent U.S. TikTok entity could be valued as low as $14 billion, just a fraction of its parent company’s previous valuation, have sent ripples across the social media space. Speculation that ByteDance, TikTok’s parent company, will still wield significant influence in the restructured business has only added to the uncertainty. With national security and regulatory issues swirling, the competitive landscape for Reddit and its peers is shifting in real time, and investors are reacting to every new twist.

But before you join the stampede in either direction, it is worth asking how Reddit’s actual numbers stack up. By our measure, Reddit is considered undervalued in just 2 of the 6 key valuation checks we run, giving it a modest value score of 2. That leaves plenty of room for debate about whether the current price offers a bargain or not. Up next, we will walk through how valuation pros assess Reddit using several common methods. And, if you stick around, we will also explore an even more insightful approach to figuring out what this social media giant might really be worth.

Reddit scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Reddit Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates what a company is really worth by projecting its expected future cash flows and discounting them back to what they are worth today. This approach gives investors a sense of the business’s true value based on its ability to generate cash over time, rather than just short-term market hype.

For Reddit, the current Free Cash Flow (FCF) is $390 Million. Analyst forecasts show strong growth in the coming years, with FCF projected to grow to around $2.17 Billion by 2029. While analysts provide direct estimates for up to five years, further projections are carefully extrapolated. All numbers are reported in US dollars.

Based on these projections and using the 2 Stage Free Cash Flow to Equity model, the DCF calculation estimates Reddit’s fair value at $296.60 per share. Comparing this to the current stock price, the discount stands at about 30.1%. This suggests Reddit shares are significantly undervalued according to the DCF model.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Reddit.

Our Discounted Cash Flow (DCF) analysis suggests Reddit is undervalued by 30.1%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Reddit Price vs Sales

The Price-to-Sales (P/S) ratio is often the go-to metric for valuing high-growth tech companies like Reddit, where strong future sales, rather than current profits, are the primary driver of valuation. For companies still maturing or rapidly scaling, the P/S ratio gives investors a clearer view of how much they are paying for each dollar of revenue. This helps sidestep the noise that comes from volatile or unproven earnings.

Growth expectations and risk play a big role in what counts as a fair P/S ratio. If investors believe a company can grow sales quickly and outpace competitors, they are usually willing to accept a higher P/S multiple. On the other hand, if the market sees major risks or doubts about profitability, that premium can shrink quickly. Right now, Reddit’s P/S ratio is an eye-popping 23.25x, which stands far above both its industry average of 1.25x and its listed peers at 3.40x. Such a premium suggests investors are betting on Reddit to deliver substantial future growth and establish a strong position in its market.

This is where Simply Wall St’s Fair Ratio comes in. The Fair Ratio is a proprietary benchmark that considers Reddit’s growth prospects, profitability, risks, industry norms, and market cap to determine what P/S multiple would be justified. For Reddit, the Fair Ratio is calculated at 11.53x. This provides a more nuanced picture than simply comparing headline multiples, as it factors in whether Reddit’s premium is warranted given its trajectory and risk profile. With the current P/S ratio (23.25x) nearly double the Fair Ratio (11.53x), Reddit’s shares appear significantly overpriced on this measure.

Result: OVERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Reddit Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. Narratives are the story behind the numbers, offering your chance to connect what you believe about a company with concrete forecasts for its future revenue, earnings, and fair value. Instead of just crunching ratios, a Narrative lets you outline your perspective (for example, “Reddit will dominate social-media advertising in new markets” or “User growth will level off, limiting upside”), plug in your own assumptions, and see how they translate into a target price. This makes investing feel more logical and personal, not just about chasing headlines or analyst targets.

On Simply Wall St's Community page, you can review and create Narratives with just a few clicks. Narratives help investors decide when to buy or sell by making it simple to compare the Fair Value from their story to today’s share price. All Narratives update automatically as news or earnings change the outlook. For example, Reddit’s most bullish Narratives project a fair value as high as $235.00, while the most cautious see it as low as $75.00, reflecting just how much perspectives (and forecasts) can differ depending on the story you believe.

Do you think there's more to the story for Reddit? Create your own Narrative to let the Community know!

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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