Is Reddit Stock a Buy, Sell, or Hold After Earnings Release?

Key Points

• Reddit stock is now showing signs of being a potential value play in the coming months and quarters, as fundamentals push on all cylinders.
• Double-digit growth across the board, and newly found profitability all act as drivers for the next wave of upside.
• Wall Street analysts see major upside potential despite current tariff volatility.

The most exciting quarter of the year is now being reported for some of the biggest companies in the stock market today. Still, despite some positive results being floated out there, some stocks (and their price action) simply haven’t reacted according to what is happening underneath the hood of their businesses, creating a massive opportunity for investors.

Because of the current fears and uncertainty driven by President Trump's recent trade tariffs, a lot of money has decided to remain on the sidelines for a little bit, waiting for the “right moment” to act once all of these fears subside. Unfortunately, by the time everything is cleared up, it will likely already be too late, so investors need to start acting right now on the best setups they can find before a potential recovery across the entire market is here.

For this reason, shares of Reddit Inc. NYSE: RDDT should be considered a potential buy in investor portfolios today. The company’s quarterly earnings results diverge significantly from the actual stock price and its performance over the past 12 months. Whenever these divergences are present, investors can be assured that big buyers are around the corner, ready to act on these opportunities in a heartbeat.

Reddit’s Business Firing on All Cylinders

Not many people understand Reddit's actual value, comparing it to X (formerly Twitter) as a source of information delivered in written form. However, there is a way Reddit differentiates itself from platforms like Twitter and even LinkedIn regarding written content.

Because users on Reddit have no agendas behind their posts, meaning their tones aren’t as focused on marketing and selling as in other platforms, the language is a bit more natural and clear within Reddit. Now that large language models have become a hot commodity in the technology sector, artificial intelligence developers look to this data as the foundation for their products.

That is where Reddit comes into play as an underrated value play that has yet to tap into its full earnings potential. However, it seems that management is steering the ship in the right direction, as seen in some of the figures in the company’s latest quarterly earnings release.

Starting with users, Reddit reported an annual user growth of up to 31%, reaching 108.1 million. Of course, these monetization measures, selling data and text to bigger technology players, saw benefits, as revenue grew by 61% over the year as well, reaching a high of $392.4 million.

But here’s where the real benefits come to investors. Reddit’s gross margin is as high as 90.5%, allowing management to retain nearly every dollar of sales made and then effectively allocate and reinvest this retained capital for further growth.

Markets Weigh in On Reddit’s Future

Understanding that these high margins will likely continue expanding the company’s free cash flow (operating cash flow minus capital expenditures), investors can point to a much higher return on invested capital (ROIC) rate in the coming years. That is where the true exponential stock price performance starts kicking in.

As of today, it seems that a few Wall Street analysts are willing to bet their reputations on this view. Particularly those from Wells Fargo, who reiterated an Overweight rating as of May 2025, landing on a $168 price target as well. Of course, this implies that the stock has room to run higher by as much as 48.7% from where it trades today.

The broader market also gives other subtle hints about sentiment for Reddit stock today. Investors can note that Reddit reported up to $0.13 in earnings per share (EPS) for the quarter, a massive improvement from last year's quarter, which reported a net loss.

That growth jump and the high capital retention rate in Reddit have driven the market to place the stock at a significant premium to its peers. Investors can see today that Reddit stock trades at a price-to-book (P/B) ratio of up to 9.6x, a steep premium to the computer sector’s 6.3x average P/B valuation.

While value investors would prefer to wait for discounts to come in, seasoned investors and traders would remind them that the market is always willing to overpay for the stocks it believes can outperform its peer group and the broader market.

Today’s evidence in Reddit’s fundamentals and the fact that it only trades at 49% of its 52-week high creates a massive opportunity for buyers regarding risk-to-reward ratios, one that might not be here as long as more investors wake up to this fact.