Down 35% This Year, Is Reddit Stock a Buy?

Social news and discussion forum specialist Reddit (NYSE: RDDT) recently closed the books on 2025 with extraordinary fourth-quarter financial results, featuring 70% year-over-year top-line growth -- an acceleration from Q3. This put the company's full-year revenue growth rate a 69%. Even more, the company has seen a surge in active users recently.

Despite this clear business momentum, the stock has suffered in 2026. Shares have lost more than a third of their value in 2026.

With the tech stock down sharply even as the business is doing exceptionally well, is this a buying opportunity for investors?

Image source: Getty Images.

Understanding Reddit's business momentum

Reddit's fourth-quarter year-over-year revenue growth rate of 70% put the quarter's top line at $726 million. Advertising revenue continues to fuel its business. Ad revenue during the period rose 75% year over year to $690 million.

Capturing Reddit's momentum, the quarter's top-line growth rate accelerated from 68% in Q3.

This top-line momentum, combined with operating leverage, is showing up nicely on Reddit's bottom line. Its fourth-quarter net income was $252 million -- up from just $71 million in the year-ago quarter. And for the full year, Reddit swung from a $484 million loss in 2024 to a $530 million profit in 2025.

"The momentum we're seeing across the business, especially in all three sections of our ad funnel, is the result of years of foundational work coming to life," said Reddit CEO Steve Huffman in the company's fourth-quarter earnings call.

Importantly, the company's momentum isn't driven solely by effective monetization of the Reddit platform. It's also being driven by fast-growing engagement on Reddit. Management said its daily active unique users rose 19% year over year to 121.4 million during the quarter. Even more, Reddit's weekly active users grew 24% year over year, fueled by a 34% growth rate internationally and a 12% growth rate in the U.S.

While some of this growth in engagement is likely due to experience optimizations, there may be something bigger at play -- something Huffman called "a once-in-a-generation shift" during the company's earnings call.

He continued:

We're now operating in a fundamentally different Internet. One shaped by opaque algorithms, generative content and growing distrust.Yet, amid this shift, more people are turning to Reddit. Not just to aimlessly scroll, but to connect, learn and research. That's because Reddit is the most human place on the Internet.

In short, Reddit seems poised to become a source of authenticity in an age of increasingly more generative AI content.

Key risks

But there are two big risks Reddit investors should consider -- and these may be among the factors weighing on the stock recently.

The first is the threat that AI poses to Reddit's reputation as a platform of human Authenticity. Even Huffman acknowledged this challenge in the company's fourth-quarter earnings call. It's difficult to distinguish a real person's thoughts from AI, he explained. "That's why we're actively working on ways to preserve our authenticity and conversation quality," he added.

Some of the solutions the company is working on include bot verification and labeling, as well as expanding its verified profiles initiative.

And another key risk is simply valuation. As of this writing, the stock trades at a price-to-earnings ratio of about 57. While Reddit's business is growing fast and arguably deserves a premium valuation, this valuation may not leave enough room for the uncertainty that an era of AI introduces.

I might consider buying Reddit at this valuation if its top-line growth were accelerating at an even more pronounced rate, but the acceleration in Q4 was only moderate. Additionally, management's guidance for first-quarter revenue of $595 million to $605 million actually calls for a meaningful deceleration. Specifically, its revenue forecast implies 52% to 54% year-over-year growth in Q1.

Overall, Reddit is a special business with impressive growth prospects, but I think shares remain overvalued -- even after their recent pullback.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool recommends Reddit. The Motley Fool has a disclosure policy.