Down Nearly 30% in 2025: Is Reddit Stock a Buy?

Reddit (NYSE: RDDT) went public just over a year ago, and its stock soared 562% from its IPO price of $34 to a record closing high of $225.23 this February. The social media company dazzled investors with its accelerating growth and rising profits.

But over the following two months, Reddit's stock was cut in half as the Trump administration's unpredictable tariffs and trade wars drove investors away from high-growth stocks. Does that pullback represent a buying opportunity for patient investors?

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Image source: Getty Images.

How fast is Reddit growing?

Reddit blends together a news aggregation platform, discussion forums, and social media features. That unique combination helped it carve out a niche in the social media market while challenging traditional news sites and online search engines.

Reddit gauges its growth in daily active unique (DAUq) users, some of whom are logged in and others that are logged out or merely browsing its forums. The company generates most of its revenue from ads, and its logged-in users are generally easier to monetize because they spend more time on its platform. Those ads drive its growth in average revenue per user (ARPU). It also offers ad-free browsing and other VIP perks through its Reddit Premium subscription tier.

Over the past year, Reddit grew its DAUq users at high double-digit rates as its ratio of logged-in users increased. As a result, its growth in ARPU and total revenues accelerated.

Data source: Reddit. YOY = Year-over-year.

A lot of that growth was fueled by the elections, geopolitical conflicts, and other major news stories, which drove more of its users to engage in online discussions. Those discussions generated more data for Reddit to craft its targeted ads. It also struck data-sharing deals with Alphabet's Google and OpenAI, which integrated its discussions directly into the former's search results and the latter's generative AI chatbot.

As Reddit attracted more users and sold more ads, economies of scale diluted its costs and boosted its gross, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), and net profit margins. That's why it turned profitable on a generally accepted accounting principles (GAAP) basis in the second half of 2024.

Data source: Reddit.

For the first quarter of 2025, Reddit expects its revenue to increase 48% to 52% year over year with a midpoint adjusted EBITDA margin of 23.3%. For the full year, analysts expect its revenue to rise 36% to $1.77 billion as its adjusted EBITDA surges 90% to $567 million. Analysts also expect the company to turn profitable for the full year with a GAAP net profit of $215 million.

Is it the right time to buy Reddit's stock?

With an enterprise value of $19.3 billion, Reddit trades at 11 times this year's sales and 34 times its adjusted EBITDA. It's not cheap, but it also isn't expensive relative to its long-term growth potential.

Reddit could still have plenty of room to grow as its blend of social networking, news aggregation, and discussion forum features pulls in more users and generates more data for its targeted ads. But it also isn't immune to the tariffs, trade wars, and other macro headwinds which could force its advertisers to spend less money on its platform. Fewer people will also likely join Reddit Premium, which only serves around half a million subscribers, in an economic downturn.

Reddit's stock seemed to get overheated this February, but it now looks reasonably valued after its latest pullback. So while it might remain volatile for the next few quarters, it could be a great growth stock to buy and hold for at least the next few years.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.