Reddit (RDDT) Stock Analysis 2026: From Multi-bagger to 60% Crash (And Up Again)

Added: 2026-05-31

[00:00:00]So, let's play a game. I have two stock charts here. The one on the left returned roughly500% in the last 15 years or so, while the one on the right did over 1300%. Roughly the same time period. So, of course, there's no prizes, but just to give you a quick hint, these two companies are actually part of the magnificent seven names. So, I'm just going to give you a few quick seconds to write down your prediction in the comment section down below. And without further ado, they're of course none other than the king and queen of digital advertising. So the one on the left was Meta Platforms while the one on the right is Google. While notwithstanding the fact that a conglomerate like Google with the parent company Alphabet having many other business verticals as well, the large part or the large driver of those returns that we've seen thus far is mostly the creation of the advertising machine that allowed them to print money from advertisements in general. So I believe for many investors myself included that is very interested in this set of companies are constantly on the lookout for probably the next Meta or the next Google. And likewise specific in this video we're going to dive deeper into the entire advertising industry.

[00:01:19]So for a long time now, I think many investors are constantly on the lookout finding the next Meta or potentially the next Google. And for many investors for a long time now, it had been nothing but a futile attempt. However, I think specifically in this video, we're going to break down one of their peer competitors, someone that is uprising, a newer company of some sort in the whole digital advertising space. And they're posting phenomenal growth rates that could potentially rival one of these two companies in time to come. But I think for a start, maybe let's dive deeper into the broader advertising industry.

[00:01:53]So using Stock oracle here, those of you who are interested to test them out, you can get your 7-day free trial with the link down below. But focusing into the advertising industry, I've essentially populated some sort of an advertising watch list. Some of the main competitors in the space with Alphabet, Google, and some of the main competitors in this space include companies like a Pinterest, Trade Desk, and Snapchat. and more importantly the newest contender in town that just IPOed roughly 2 years ago which is Reddit. And of course with no surprise most of the discussion today will focus around Reddit. So before we dive into Reddit proper let me walk you through my thought process on why I wanted to even do a deep dive initially.

[00:02:33]So going to stock oracle looking at my watch list I've already populated a list in the digital advertising space. So I go into digital ads and you can see that I can add any extra companies just by keying in their stock ticker here. For example, let me add an additional company in the adjacent industry for example app. So I just have to key in the ticker and then I'll just add the company into the list and you can see here they immediately populate the company with the Oracle IQ chart. They essentially rank all the companies across six main domains. You have your predictability, profitability, economic mode, balance sheet, financial strength, and oracle value. And you can see that it's really a very useful feature that I can pit all these companies against them. And just at one glance, I can kind of have a rough gauge or sensing in terms of the quality of the business and whether it's worth my time to dive deeper into it. And of course clearly I think if you were to ignore the oracle value for now which is the last segment I think alphabet and meta both scores very very highly on the five different domains and specifically if I to scroll down to kind of see the newer competitors that are in the space. I think Reddit no doubt tends to rank a much higher compared to companies like Pinterest and trade desk as well. Hence off why I wanted to look into the company. But on top of that in fact I think if you just want to do a very quick kind of surface level understanding of the business itself.

[00:03:55]Take for example look into Snapchat and then at the top rightand corner I can immediately toggle the trading view chart and see that over the last 5 years Snapchat essentially collapsed. But that's just how the stock market reacted. We know sometimes that Mr. Market can be a bit cuckoo. But instead let's focus more on the business fundamentals. So if to scroll down and go under the financial section you can see that yes although revenue is trending in the uptrend it's in kind of like the right direction but secondly I think the natural question is what is the growth rate but more importantly I think you have to focus on the bottom line both the operating income and net income basis Snapchat is actually still not profitable so technically you're still buying into a money incinerating machine and similarly if you look across the last 5 years they have also been taking on quite a bit of debt so going back maybe it's a Snapchat specific problem. Let's now go to someone like Pinterest for example. So, same thing looking at the last 5-year chart on Pinterest. Not a very good picture, but let's focus on the business fundamentals again. Scrolling down, going into business financials, looking through the numbers, yes, although Pinterest looks much better than Snapchat, at least they're profitable. But that said, I think the conversion or at least the inflection towards being much more profitable is still not there. But last but not least, let's now look at Reddit instead. So for Reddit, they have only IPOed roughly two years ago. So we don't really have a very long time horizon for a like forlike comparison. But at least if you to look into their financials, Reddit pose a much bigger picture. At least on a growth rate perspective, they've close to doubled in less than one and a half years. You can see that after the IPO in 2024, they quickly just inflected to the upside, posing good profitability on operating and net income. And not only that, when you look at operating cash flow and also free cash flow, we are seeing good numbers here and they're trending at a very very escalating and accelerated rate. So Reddit is probably a company that you want to pay close attention to. And in fact, looking at the balance sheet as well, cash and cash equivalents are rising. There's not much debt and this type of company is exactly in our universe that we're interested in. So now going back to what I've prepared, I want to walk you through what essentially happened to Reddit ever since its IPO, which is in the short span of the last two years or so, especially to newer investors that haven't been keeping up to the latest trends or updates or developments around Reddit specifically. And you can see that they essentially went through this very very roller coaster of a ride. So from IPO date in early 2024, they've actually experienced this sort of a two three months kind of decline from their IPO fever. But from the April bottom in 2024, they have became a sixbagger, increasing more than 500% in a short span of say two to three quarters. And from that 2025 peak, they experienced a 65% decline in a short span of 3 months.

[00:06:40]And very quickly regained their all-time highs in that same year in late 2025.

[00:06:44]And from that all-time high figure until their recent bottom, they experienced a near 60% decline again. So the long and short of it, I think a very simple conclusion is that Reddit is not a stock for the faint-hearted. Within just a short few quarters, the stock can be up multiple baggers and they can also be down by close to 60%. And they've seen this kind of 60% draw down for two times now in the short span of two years. So what exactly happened? So for a start, I think the initial pitch for Reddit when they IPOed back in 2024 was that they had 19 years of unmonetized data. They had two decades of authentic human conversation and more importantly an untapped ad business. And for investors that are relatively new to this company, I think the easiest way for you to gain some sort of an insight is to really just be a consumer. So sign up for a Reddit account today, engage in some of the subreddits or some of the interest groups and use it like a real user and understand from the consumer perspective on why they constantly go back to Reddit. But coming back to the stock or the business itself, I want to kind of explain why did we see such a huge uptrend. There were essentially four things that compounded together in that 2024 2025 period. For one, they executed their ad growth strategy at an astounding rate. So they were growing in clips of 48% to 54% to 68% to 71%. All the way to 2024 and they've just hit their $1 billion fullear target as Reddit finally started to build their ad stack. So specifically in the stock market, if you're looking at a business that is growing at an accelerating rate, usually investors tend to go crazy about them because there's really no ceiling in terms of where your imagination can bring you. Today, if Reddit can continue accelerating this growth to over 80 90% then I think investors excitement is warranted. On point number two is that a company just hit their gap profitability. So GAP means generally accepted accounting principles essentially not all your adjusted or figures like what Warren Buffett and Charlie Mangle calls them.

[00:08:44]So they ended Q3 2024 with roughly $30 million in net income. On point number three, they started their new business vertical which is under the data licensing idea and they went from zero to a meaningful business arm with a $60 million per year Google deal and an open AI agreement that is worth more than $130 million. And this is high margin vertical because Reddit clearly don't have any cost of goods sold and they just allow for many of these large language model like Google's Gemini and Open AI to just script their database.

[00:09:15]So that essentially reframe Reddit as an essential AI infrastructure or an essential AI data provider. And lastly on point number four we are seeing humongous and phenomenal growth rates.

[00:09:26]So daily active users, one of the most important metric for some of these social media companies, actually grew from 73 million to 101 million, which showed continued exceptional growth and expansion and adoption, especially overseas. And no doubt even the local US market continued to grow at a pretty impressive clip despite having a relatively mature pace. Now let's move on to what happened during the two specific drawdowns. So for the first draw down during the early 2025, so their Q4 earnings actually beat headline, but they started to miss on their daily active users numbers and the CEO actually blamed a Google search algo update. So most of Reddit's locked out user traffic actually comes from Google themselves or Google search specifically. And if they actually turn it off or change some of the algo updates, the growth story of Reddit starts to turn hostage to a single counterparty. And you can generally look at Reddit as a derivative of Google search volume traffic. And that's a very big problem because Google search starts to become your bottleneck. And if you're solely relying on Google bringing the traffic means that Google can remove the traffic from you as well. It works vice versa. And from that single event, the stock actually dropped more than 15% the next day and it kept falling into the April tariff shaw with our dear President Trump. Moving on to draw down number two, which is more recent. So, a bit more context, Reddit actually recovered to a new all-time high on their monster Q2 results where you see the ads actually accelerated again to more than 84% growth year on year. So, again, like I said, from a 50% grower, they're now going to 70 80%. Hence of why investors are just going crazy over this name. So, analysts also started to monitor certain adjacent data that could potentially be disase breaking as well.

[00:11:09]So, one example is CH GPT citations. So what they actually analyzed or kind of gathered data was that Reddit's traffic from chat GPT actually fell from 14% to roughly 2% in two days and that will potentially have a direct hit to their AI licensing narrative because when the relevance of Reddit's data set to train the ALGO or even the large language model starts to phase out then the question is would they continue on this licensing deal and could they continue to clinch bigger and bigger deals I think that remains a very big question mark henceforth why investors are casting aspersions and trying to reduce the multiple or expectations of bigger contracts down the line. However, I think a bigger case to be made here is that Reddit continued to post monstrous numbers, but I think the guidance actually implied some sort of a deceleration. So, from a 70 80% grower where investors are getting excited, they're now expecting to grow at roughly 53% for the upcoming year ahead. So, naturally, I think people started to tone down their expectations. they're going to express their skepticism and henceforth why we saw this eventual sellout. But a bigger picture here is that at least based on the latest quarter in Q1 of 2026, we can see that revenue is up more than 69% year-over-year, gross margins actually improved by 100 basis points in essence increasing by 1%. So from 19.5% they increase to 91.5%. The net income is at 31% margins. Adjusted IBIDA is at 40% margins. Operating cash flow is at 47% margins. I think if you pose this set of numbers to any investors without talking too much about the business model or giving you the specifics of the company all these are operating at elite levels.

[00:12:48]So henceforth why Reddit despite the sellown is still selling or trading at a relatively richer multiple compared to your matured businesses. And this is a company that requires relatively lower maintenance to achieve that sort of growth rate. It's a lot of the mood in effect here including your network effects, your economies of scale, your barriers to entry and the reliance and habitual instinct of the consumers so on and so forth. So from here what exactly is the market pricing in today? So, as of the time of this recording, Reddit is trading at roughly $159 per share. And the market is pricing them at a $13 billion market cap, roughly at a 45 times trailing price to earnings ratio, and a 30 times forward to PE because they're expecting the earnings to grow at a pretty high rate. But at its peak, not forgetting the fact that the forward PE multiple was closer to 55 times instead. So, as a prospective or even as an existing investor, here are three of the key issues that you probably have to wrestle with. For one, you have to ask yourself or have to determine whether the growth and the growth trajectory or potential is real or whether they're just a distribution channel for Google.

[00:13:53]So the lockedin daily active user growth is genuine and still accelerating in the US with a more than 9% yearon-year growth. But I think the bigger headline number that we have always leaned on, which is the locked out users arriving via Google search, is a big question mark here. And a single algorithm change in early 2025 was able to break the thesis once since the first draw down as we have explained. And of course the bigger thesis breaking idea here is whether they're able to sustain certain level of expectations or sustainability in traffic that will come which will allow them to kind of monetize them via the back end via the ads architecture.

[00:14:29]And if that whole logic chain is being broken down or there's some espersions being casted here, then yes, I think Reddit will inevitably take a hit on that because the business mode is being challenged and they're not as strong as people expected them to be. And from here, the management of Reddit has also explicitly disclosed that they're trying to face this entire locked in locked out disclosure entirely in Q3 of 2026, which will further model the picture as we don't really have a exact breakdown on that. And fundamentally, I think you need to believe that Reddit actually converts enough driveby traffic into monetizable locked in users to make Google's grip on the funnel a feature but not a single point of failure.

[00:15:07]Moving on to point number two, which is the view on the data licensing framework here. So licensing currently makes up roughly 7 to 10% of their revenue, but it carried the entire AI infra data set narrative that took the stock to its all-time high. So the chat GBD citation that we saw and the recent lawsuit with Claude or their parent company Entropic is Reddit's attempt to actually force the rest of all these AI labs to pay rather than just script online for free.

[00:15:33]But that's a multi-year legal outcome.

[00:15:35]And the bull case here is that Reddit becomes the human layer for AI era recommendations. But the bad case here is that licency actually tops out at below 10% of revenue and we don't see any bigger contracts down the line. And I think my own perspective here is this specifically for data licensing. I think this is a pretty nent yet very very interesting layer for Reddit's main mode or main business here. No doubt that I think Reddit actually holds one of the richest data set that is closest to the human form factor in the case of discussion versus many of the other social media platforms specifically Meta and Alphabet. But this idea or definition of being rich is not very well defined. and whether would a lot of all this AI super intelligence lab actually pay the bill and to accord certain premium into scraping the data.

[00:16:20]So that discussion is still in the very very early stage and I will only believe in the richness of the data to real money. So if companies and all these AI labs start to pay more and more money to gain access or to gain the license to Reddit's data then yes I would believe that this mode is well established. But for now, I think a lot of investors and traders alike are looking at many adjacent data points. For example, like CHPD citations, um, for example, the deal sizes, for example, the contracts or the lawsuit to form a baseline view of whether Reddit is worth the salt. So, henceforth, why when reflected back to the stock price, you see this sort of crazy volatility? Because for a very simple conclusion, there is no widely recognized consensus. So, everyone is expressing their view by buying and selling the stock. And when the narrative is running hot, people are willing to pay expensive or premium valuations. And the reverse is also true. And as we have alluded at the start of the video, a stock like that is definitely not for the faint-hearted.

[00:17:17]And as Reddit continues to grow its presence, its mood, and its execution, you will need to go through this kind of very pronounced ups and downs. And lastly, zooming specific to its valuations, they're trading at roughly a 30 to 32 times forward, depending on which forward estimates you're using.

[00:17:32]And the question is from its all-time highs they were growing revenue at probably in the range of 70 to 80%. But now in recent years they're guiding down to 50 over%. While still very respectable and exceptional but the question you have to ask yourself is in terms of this growth trajectory where do you stand? Because if to take a forward multiple and to focus on something like the PEG ratio which is the price to earnings divided by growth they're trading at roughly a 7 pack. And at 7 pack in all honesty is a pretty undemanding valuation because you're factoring in the growth expectations.

[00:18:03]But that said I think especially for this sort of smaller companies that are not as mature when you start to scale down or decelerate your growth from 70 to 50%. What investors are potentially worried about is that from 50% it will set your new baseline or ceiling and then it will go down to 30 to 20 and then suddenly to 10%. And suddenly Reddit doesn't become a growth stock anymore. And that kind of deceleration in growth as we have seen in past case studies are what generally killed many of these growth stocks specifically. So with all that said, remember to leave in the comment section below on what you think about Reddit today. And this is CK from Pana Profit signing off. Till next time, keep winning.