Reddit (RDDT) stock has been on a sharp uptrend over the last month, with a 20% rally. The price action has come following stellar Q1 results that surpassed analyst expectations.
Reddit reported 69% year-on-year revenue growth for Q1 to $663 million, with free cash flows of $311 million for the period. The surge in revenue was backed by a 74% year-over-year growth in advertising revenue to $625 million. At the same time, daily active unique users increased by 17% to 126.8 million.
In addition to strong growth and robust cash flows, Reddit has provided optimistic guidance for Q2. The company expects revenue (at the mid-range) of $720 million and adjusted EBITDA of $290 million. With continued growth in advertising revenue, active users, and ARPU, Reddit stock seems poised for a sustained rally.
About Reddit Stock
Headquartered in San Francisco, Reddit is an operator of a digital community with a global presence. As of December 2025, the company had an average of 121.4 million daily active unique users. For the same period, 57% of Reddit users were from outside the United States.
Reddit has been on a high-growth trajectory, and for fiscal 2025, revenue growth was 69% year-over-year to $2.2 billion. One of the contributors to top-line growth was a 42% year-on-year increase in average revenue per user to $5.98. It’s worth noting that Reddit ended FY25 with healthy free cash flows of $684.2 million.
While Reddit has delivered healthy numbers, the stock has declined by almost 19% in the last six months. A reversal seems likely with a Q1 earnings beat and strong Q2 guidance.
Ample Headroom for Growth
An important point to note is that for Q4 2025, Reddit reported a quarterly ARPU of $5.98. This has increased from $3.42 in Q4 2023. Even if the number of active users remains constant, an increase in ARPU will support top-line and cash flow growth.
Further, as of Q4 FY25, ARPU in the United States was $10.79, representing 53% year-over-year growth. For “Rest of World,” the ARPU for the same period was $2.31 with year-over-year growth of 38%.
There is a significant gap in ARPU between the United States and other markets globally. With increasing global users, advertising revenue will likely grow, and the ARPU gap will narrow on a relative basis. This is another catalyst for top-line and cash flow growth.
On the user growth front, Reddit has already indicated it’s targeting 100 million daily users in the U.S. With a strong ARPU trend in the United States, reaching that target is likely to boost free cash flows.
What Do Analysts Say About RDDT Stock?
Based on 29 analysts with coverage, RDDT stock has a consensus “Moderate Buy” rating. While 16 analysts have a “Strong Buy” rating for RDDT stock, one analyst has a “Moderate Buy,” and 11 analysts have a “Hold” rating. Among the bears, one analyst has a “Strong Sell” rating.
The mean price target of $219.46 represents potential upside of 31.8% from current levels. Further, the most bullish price target of $300 suggests that RDDT stock could climb 80.2% from here.
In Conclusion
Recently, DA Davidson initiated coverage on RDDT stock with a “Buy” rating. A key reason for this bullish view is that Reddit remains significantly under-monetized as compared to peers. DA Davidson analyst also believes that as Reddit “positioned itself as a human-first social platform,” the user base will continue to swell.
The positive view on Reddit is underscored by the fact that earnings growth is expected to be robust at 53.44% and 40.55% for fiscal 2026 and fiscal 2027, respectively. Considering the growth outlook, a forward price-to-earnings (P/E) ratio of 36.6x seems attractive. Given the relatively deep correction of 28% for the year-to-date, it seems like a good opportunity to accumulate.
On the date of publication, Faisal Humayun Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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