Reddit RDDT shares have gained 43.1% in the past year, underperforming the broader Zacks Computer & Technology sector’s 54.8% rise. The underperformance can be attributed to a challenging macroeconomic environment and seasonal volatility. Stiff competition in the digital advertising market poses a significant challenge for Reddit.
However, the company’s shares have outperformed the Zacks Internet - Software industry’s decline of 9.8%.
The company’s shares have also outperformed its peers like Pinterest PINS, META Platforms META and Snap SNAP, which are also expanding their footprints into advertising to compete in the rapidly growing digital ad market. Pinterest, Meta Platforms, and Snap shares have lost 38.3%, 13.1%, and 31.8%, respectively, in the past year.
The outperformance can be attributed to the company’s expanding portfolio, strong user engagement, including rising daily and weekly active users, gains in Average Revenue Per User (ARPU) and the expansion of advertiser tools such as Dynamic Product Ads (DPAs), Reddit Pixel and CAPI. These factors are expected to fend off competitors like Pinterest, Meta Platforms and Snap.
RDDT Stock Performance
Image Source: Zacks Investment Research
RDDT Benefits From Expanding Partnership With Shopify
Reddit is benefiting from its expanding partnership with Shopify. This move is poised to significantly boost its ad revenue. In the first quarter of 2026, Ad revenues climbed 74% year over year to $625 million, accounting for the vast majority of the top-line expansion.
The Shopify integration streamlines the process for merchants to launch DPAs on Reddit. In May 2026, Reddit expanded its Shopify integration globally, making it easier for merchants to launch DPAs and connect storefronts directly to Reddit’s advertising platform.
The update includes streamlined account linking, automated product catalog syncing and a codeless Reddit Pixel for conversion tracking. Reddit also highlighted new retail research showing strong shopping intent among its users, with advertisers seeing higher returns on ad spend compared with other social platforms. The company highlighted that retail ad investment has grown significantly, reinforcing its position as a key destination for product discovery and purchase decisions.
In the first quarter of 2026, DPAs have also driven more than 90% higher return on ad spend year over year, with brands like Liquid I.V. seeing DPAs outperform other campaigns by 40%. These advancements are attracting a broader range of advertisers. In the first quarter of 2026, active advertisers grew more than 75% year over year.
Reddit Benefits From Solid ARPU Growth
Reddit is benefiting from solid growth in ARPU, which is emerging as a key growth driver for the company. In the first quarter of 2026, ARPU increased 44% year over year to $5.23, indicating that portfolio expansions are driving higher monetization per user.
Reddit’s unique community-driven model also plays a significant role. With nearly 500 million weekly users globally and 200 million in the United States, Reddit’s deeply engaged user base generates high-intent, authentic conversations. Around 40% of conversations on Reddit are commercial in nature, and 84% of shoppers report feeling more confident in their decisions after researching on Reddit. This high level of commercial intent has further boosted ARPU.
Reddit’s ARPU growth is supported by its expanding advertiser base and improved ad automation. The company has integrated more automation and AI into its ad platform through the launch of Reddit Max, which enables advertisers to achieve better performance with less manual input. Advertisers using Max campaigns have seen a 17% reduction in cost per action and 25% more conversion outcomes.
Earnings Estimates for Reddit Show Upward Trend
RDDT’s expanding portfolio and rising user engagement are expected to drive the company’s top-line growth.
For the second quarter of 2026, management expects revenues to be in the range of $715 million to $725 million. The Zacks Consensus Estimate for second-quarter revenues is pegged at $746.89 million, indicating year-over-year growth of 49.49%.
For the second quarter, the consensus mark for earnings is pegged at 99 cents per share, which has increased 3.12% over the past 30 days. This implies year-over-year growth of 120%.
Reddit Inc. Price and Consensus
Reddit Inc. price-consensus-chart | Reddit Inc. Quote
RDDT Stock Is Overvalued
Reddit stock is currently trading at a premium, as suggested by the Value Score of F.
In terms of the forward 12-month Price/Sales ratio, RDDT is trading at 8.81X, higher than the broader Zacks Computer & Technology sector’s 7.02X.
RDDT Valuation
Image Source: Zacks Investment Research
Conclusion
Reddit’s prospects benefit from an expanding advertising business, an expanding clientele and rising user engagement.
However, a challenging macroeconomic environment and seasonal volatility are headwinds. Stretched valuation and stiff competition also remain concerns.
Reddit currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).