With more than 100,000 active communities and over 108 million daily active users, Reddit (RDDT) is set to join the Russell indexes later in this quarter. At the close of business on June 27, RDDT will be joining the Russell 3000 Index (RUA). In addition, it will be added to either the Russell 2000 Index (RUT) or Russell 1000 Index (RUI). This marks a milestone in Reddit’s journey as a publicly traded company, and it aims to join more mainstream broader market indexes. 

With this impending addition, should you consider investing in RDDT now?

About Reddit Stock

Founded in 2005 and headquartered in San Francisco, California, the social media platform Reddit (RDDT) operates as a community-based space where people with similar interests and passions find a platform to express themselves. The company has a market cap of $19.5 billion. 

RDDT’s stock has held up strong since its debut, as it’s up by 87% over the past 52 weeks. However, it has experienced some correction recently, as the stock is down 33% on a YTD basis. RDDT had posted a fresh 52-week high of $230.41 in February, but is now down 54% since that point, as tariffs have caused some disruption in the market trajectory. 

Reddit’s stock took a hit, but it is still riding high, priced at 177.32 times forward earnings and 14.85x sales. That is seriously stretched. For a platform battling headwinds, the valuation feels ahead of itself, hinting a deeper correction could still be lurking around the corner.

Reddit Posts Robust Q1 Results

Reddit posted better-than-expected fiscal 2025 first quarter results on May 1. Its revenue rose 61% year over year to $392.4 million, the third consecutive quarter that the company posted top-line growth above the 60% mark. Plus, the company reported EPS of $0.13, which was significantly better than the $8.19 loss per share in the prior-year quarter. This surpassed the $0.02 EPS that Wall Street was expecting. Its adjusted EBITDA grew dramatically year-over-year to $115.3 million. 

At the center of this growth was Reddit’s platform, gaining more users and expanding. The company’s average Daily Active Uniques (DAQs) for Q1 grew by 31% annually to 108.1 million, while its average revenue per user (ARPU) climbed by 23% to $3.63. Reddit’s international segment performed better than its U.S. segment, both in terms of user growth and top-line expansion.

Reddit is actively finding ways to bolster its user growth. In March, the company unveiled a new tool for users to navigate through the platform’s communities better. The new tools help users see if their posts violate community rules or recover posts to be shared in another community where the rules are not violated. 

Meanwhile, Reddit issued upbeat Q2 guidance, projecting its revenue to be between $410 million and $430 million, and adjusted EBITDA between $110 million and $130 million, implying a growth of around 200% year over year. 

Analysts are extremely optimistic about Reddit’s earnings growth trajectory, estimating EPS growth of 416.7% year over year to $0.19 in Q2. Looking further ahead, for fiscal 2025, EPS is expected to surge by 136.3% to $1.21, followed by an increase of 80.2% to $2.18 in fiscal 2026.

What Do Analysts Expect for Reddit Stock?

Analysts from multiple brokerage firms gave a mixed outlook on RDDT. Some analysts see the company facing a threat from artificial Intelligence (AI). Baird’s Colin Sebastian, while keeping the rating on RDDT fixed at “Neutral,” lowered the price target from $140 to $120. Sebastian sees AI as a headwind to the company’s operations as its platform depends on human interactions for information diffusion. 

Citing the same reason, Wells Fargo’s Ken Gawrelski downgraded the stock from “Overweight” to “Equal Weight.” He also lowered the price target from $168 to $115. 

On the other hand, Seaport Global Securities analyst Aaron Kessler upgraded the rating from “Neutral” to “Buy.” Kessler also set a new price target of $165. Seaport sees potential in Reddit following its robust Q1 results. 

Analysts have a positive outlook on RDDT, giving a consensus rating of “Moderate Buy.” Of the 23 analysts rating the stock, 13 have rated it a “Strong Buy,” one suggests a “Moderate Buy,” eight analysts are playing it safe with a “Hold” rating, and the remaining one analyst recommended a “Strong Sell” rating.

The consensus price target of $155.30 represents a potential upside of 44%.