Maybe I Wasn’t So Wrong About Reddit After All

Last November, I published an article admitting I got Reddit (NYSE:RDDT | RDDT Price Prediction) “epically wrong.” Since its March 2024 IPO, I had been skeptical about the company’s prospects, with my main concerns centering on user metrics and its ad business as a core growth driver. 

Content licensing deals with AI companies, such as the $60 million annual agreement with Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) and pacts with Meta Platforms (NASDAQ:META), were dismissed as insignificant, even as they approached 15% of revenue. High valuations seemed excessive for an unprofitable company prone to volatility. I also overemphasized regulatory risks on content moderation and economic pressures on spending, while overlooking digital ad market growth of 15% in 2025 and Reddit’s strong international user expansion of 31%. Yet after recent events, perhaps I wasn’t so wrong after all.

Earnings Beat Meets Market Skepticism

Reddit reported fourth-quarter results on Thursday with revenue of $726 million, a 70% year-over-year increase that beat analyst expectations of around $660 million. Earnings per share came in at $1.24, surpassing the consensus estimate of $0.94. Daily active uniques grew 19% to 121.4 million, and the company announced a $1 billion share repurchase program. 

Despite these positives, the stock dropped 7.4% on Friday, closing at around $140 per share. This decline reflected broader investor unease, even as shares initially rose in after-hours trading on Thursday.

The drop came amid a sector selloff, with peers like Snap (NYSE:SNAP) and Pinterest (NYSE:PINS) reporting weaker results, leading to sympathy selling for Reddit. Over the past month, Reddit’s stock had already fallen 38%, amplifying reactions to the earnings. 

Analysts noted strong ad revenue of $690 million, up 75% year-over-year, but flagged potential risks from reliance on small and midsize advertisers. Recent insider selling also contributed to the negative sentiment.

Growth Deceleration Raises Red Flags

A key worry emerging from the earnings report centers on slowing U.S. user growth. U.S. daily active uniques increased 9% to 52.5 million, but logged-in users in the U.S. grew only 5% to 23 million, down from 7% in the third quarter. This marked the sixth consecutive quarter of decelerating U.S. logged-in growth. Logged-in users are more valuable for advertising, as they engage more deeply than logged-out visitors who arrive via search. The U.S. remains Reddit’s most profitable market, so this slowdown hints at potential saturation, limiting future expansion in a core revenue area.

Global logged-in daily actives reached 50.7 million, below some analyst expectations. Bank of America analysts described it as “another solid quarter, but logged-in user growth still slowing.” They anticipate initiatives like ad performance improvements and automation to aid advertiser returns, but question U.S. user growth from onboarding efforts. JPMorgan maintained a neutral rating but cut its price target to $200 from $227.

Hiding Metrics Sparks Transparency Concerns

Reddit’s decision to phase out reporting on logged-in versus logged-out users later in 2026 added to investor skepticism. CEO Steve Huffman explained in an investor letter that the distinction between the metrics has diminished. However, this move is seen by some as obscuring a critical gauge of engagement. Logged-in metrics have been a focal point for assessing ad potential, and no longer reporting them could make it harder to track progress in user retention and monetization.

For Reddit, these factors signal challenges in sustaining high growth as comparisons toughen. International revenue grew 78% year-over-year, faster than 68% in the U.S., but domestic saturation could cap overall momentum. If user engagement stalls, ad revenue growth — Reddit’s primary driver — may decelerate, pressuring profitability despite current margins of 35%. 

Investors face increased risks, as high valuations assume continued expansion. With the stock trading at elevated multiples, any further slowdown could lead to more price target reductions and volatility. Analysts like those at Morgan Stanley see the ad outlook as strong, but note onboarding slowdowns and logged-in growth slowing down could impact monetization debates.

Key Takeaway

While Reddit may still be exhibiting metrics that are stronger than I originally believed would be the case, my original concerns may not have been wrong, just early. Doubts on user engagement, ad reliability, and high valuations are resurfacing with slowing U.S. logged-in growth and metric changes. These issues could manifest as growth normalizes, potentially validating my past skepticism despite the company’s 2025 progress.