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Reddit Stock Plunges 30% Post Q3 Earnings: Buy, Sell, or Hold?
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Key Takeaways
Reddit shares plunged 29.8% after Q3 earnings amid search traffic weakness and rising costs.
Q3 ad revenues surged 54% to $847 million, while daily active users rose 12%.
Strong ad demand supports Reddit, but search traffic volatility and premium valuation remain concerns.
Reddit (RDDT - Free Report) shares have lost 29.8% since it reported third-quarter 2026 results on Oct. 29, 2026. The decline can be attributed to declining Google search referral traffic, primarily due to the expansion of AI Overviews and AI Mode, which weighed on logged-out user traffic and overall engagement. Rising infrastructure costs and increased investments in consumer marketing and lower returns from web-user acquisition campaigns posed challenges.
Click here to check the details of Reddit’s third-quarter 2026 results.
The company’s shares have lost 60.4% in the year-to-date period against the broader Zacks Computer & Technology sector’s rise of 9.7%. It has also underperformed its peers in the digital advertising market, including companies like Pinterest (PINS - Free Report) , Meta Platforms (META - Free Report) and Alphabet (GOOGL - Free Report) . All three companies lost 21.5%, 8.1% and 10.8% in the year-to-date period, respectively.
Despite the headwinds, Reddit’s expanding advertising portfolio, strong engagement among logged-in and app users, gains in average revenue per user and growing adoption of AI-powered advertiser tools have been key growth catalysts. Rising advertiser spending, improved ad pricing and robust international demand have further supported its performance.
RDDT Stock Performance
Image Source: Zacks Investment Research
RDDT Benefits From Strong Advertising Portfolio
Reddit is benefiting from its expanding advertising portfolio, growing advertiser adoption and increasing demand for performance-driven marketing solutions. The company’s investments in artificial intelligence (AI), machine learning and advertising automation are strengthening monetization. In third-quarter 2026, advertising revenues surged 54% year over year to $847 million, driven by higher pricing and impressions. Click volume increased more than 50%, while conversion volume more than tripled, reflecting improving advertising effectiveness.
Reddit’s AI-powered advertising solution, Reddit Max, is emerging as a key growth driver. The platform entered public beta in the third quarter, with advertiser adoption more than tripling sequentially. Enhanced machine-learning models, real-time signals and improved targeting capabilities are helping advertisers achieve better campaign performance. The company also expanded shopping capabilities to support up to 20 million products. Shopping and app-install advertising objectives each registered more than 95% year-over-year revenue growth in the third quarter of 2026, highlighting strong demand for lower-funnel solutions.
Reddit is also expanding its advertising opportunities through video, business-to-business (B2B) marketing and strategic partnerships. Video advertising revenues more than doubled year over year, supported by the introduction of a 15-second engaged video-view objective. Enhanced lead-generation tools and in-market audience targeting are strengthening Reddit’s appeal among B2B advertisers.
Reddit’s expanding advertising ecosystem, supported by integrations with Shopify, HubSpot, Smartly, Innovid and Skai, is improving accessibility for advertisers. Revenues from its Ads API ecosystem increased more than 45% sequentially in the third quarter of 2026. Improvements in personalized feeds, video experiences and community engagement are further strengthening user retention. These initiatives are expected to support sustainable advertising growth and higher average revenue per user.
Reddit Gains From Strong User Growth
Reddit gains from robust user growth, positioning itself as a formidable player in the digital advertising space. In the third quarter of 2026, daily active uniques (DAUq) increased 12% year over year to 130.3 million, while weekly active uniques (WAUq) rose 16% to 515.2 million. The expanding user base reflects growing engagement across Reddit’s interest-based communities and increasing demand for authentic, user-generated content.
International expansion remains a major driver of Reddit's user growth. In the third quarter of 2026, International DAUq jumped 24% year over year to 79.6 million, while international WAUq increased 28% to 326.7 million. However, U.S. DAUq declined 2% to 50.7 million. The growing international audience highlights Reddit’s opportunity to strengthen its global presence and attract users across diverse communities.
Reddit is also focusing on improving user engagement and retention through personalized feeds, enhanced content recommendations and video experiences. Improvements in machine-learning-driven recommendations have strengthened content discovery. The percentage of new users returning within the first week after installing the Reddit app increased by more than 50% year over year. Logged-in and app DAUq also grew sequentially, reflecting improving engagement among its most valuable users.
Earnings Estimates for Reddit Show Upward Trend
RDDT’s expanding advertising portfolio and rising user engagement are expected to drive the company’s top-line growth.
For the fourth quarter of 2026, management expects revenues between $1 billion and $1.03 billion. The midpoint represents approximately 40% year-over-year growth. The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $1.02 billion, indicating year-over-year growth of 39.93%.
For the fourth quarter, the consensus mark for earnings is pegged at $1.76 per share, which has increased by a couple of pennies over the past 30 days. This implies year-over-year growth of 41.94%.
Reddit stock is currently trading at a premium, as suggested by the Value Score of C.
In terms of the forward 12-month Price/Sales ratio, RDDT is trading at 4.03X, higher than the broader Zacks Internet - Software industry’s 3.84X, Pinterest’s 2.21X and Snap’s 1.25X. However, it is lower than Meta Platforms’ 5.09X.
RDDT Valuation
Image Source: Zacks Investment Research
Conclusion
Reddit’s prospects benefit from strong user engagement and an expanding advertising portfolio. However, the company faces search traffic volatility, rising costs and intense competition in the digital advertising space. Stretched valuation also remains a concern.
View the Zacks #1 Rank List
Image: Bigstock
Reddit Stock Plunges 30% Post Q3 Earnings: Buy, Sell, or Hold?
Key Takeaways
Reddit (RDDT - Free Report) shares have lost 29.8% since it reported third-quarter 2026 results on Oct. 29, 2026. The decline can be attributed to declining Google search referral traffic, primarily due to the expansion of AI Overviews and AI Mode, which weighed on logged-out user traffic and overall engagement. Rising infrastructure costs and increased investments in consumer marketing and lower returns from web-user acquisition campaigns posed challenges.
Click here to check the details of Reddit’s third-quarter 2026 results.
The company’s shares have lost 60.4% in the year-to-date period against the broader Zacks Computer & Technology sector’s rise of 9.7%. It has also underperformed its peers in the digital advertising market, including companies like Pinterest (PINS - Free Report) , Meta Platforms (META - Free Report) and Alphabet (GOOGL - Free Report) . All three companies lost 21.5%, 8.1% and 10.8% in the year-to-date period, respectively.
Despite the headwinds, Reddit’s expanding advertising portfolio, strong engagement among logged-in and app users, gains in average revenue per user and growing adoption of AI-powered advertiser tools have been key growth catalysts. Rising advertiser spending, improved ad pricing and robust international demand have further supported its performance.
RDDT Stock Performance
Image Source: Zacks Investment Research
RDDT Benefits From Strong Advertising Portfolio
Reddit is benefiting from its expanding advertising portfolio, growing advertiser adoption and increasing demand for performance-driven marketing solutions. The company’s investments in artificial intelligence (AI), machine learning and advertising automation are strengthening monetization. In third-quarter 2026, advertising revenues surged 54% year over year to $847 million, driven by higher pricing and impressions. Click volume increased more than 50%, while conversion volume more than tripled, reflecting improving advertising effectiveness.
Reddit’s AI-powered advertising solution, Reddit Max, is emerging as a key growth driver. The platform entered public beta in the third quarter, with advertiser adoption more than tripling sequentially. Enhanced machine-learning models, real-time signals and improved targeting capabilities are helping advertisers achieve better campaign performance. The company also expanded shopping capabilities to support up to 20 million products. Shopping and app-install advertising objectives each registered more than 95% year-over-year revenue growth in the third quarter of 2026, highlighting strong demand for lower-funnel solutions.
Reddit is also expanding its advertising opportunities through video, business-to-business (B2B) marketing and strategic partnerships. Video advertising revenues more than doubled year over year, supported by the introduction of a 15-second engaged video-view objective. Enhanced lead-generation tools and in-market audience targeting are strengthening Reddit’s appeal among B2B advertisers.
Reddit’s expanding advertising ecosystem, supported by integrations with Shopify, HubSpot, Smartly, Innovid and Skai, is improving accessibility for advertisers. Revenues from its Ads API ecosystem increased more than 45% sequentially in the third quarter of 2026. Improvements in personalized feeds, video experiences and community engagement are further strengthening user retention. These initiatives are expected to support sustainable advertising growth and higher average revenue per user.
Reddit Gains From Strong User Growth
Reddit gains from robust user growth, positioning itself as a formidable player in the digital advertising space. In the third quarter of 2026, daily active uniques (DAUq) increased 12% year over year to 130.3 million, while weekly active uniques (WAUq) rose 16% to 515.2 million. The expanding user base reflects growing engagement across Reddit’s interest-based communities and increasing demand for authentic, user-generated content.
International expansion remains a major driver of Reddit's user growth. In the third quarter of 2026, International DAUq jumped 24% year over year to 79.6 million, while international WAUq increased 28% to 326.7 million. However, U.S. DAUq declined 2% to 50.7 million. The growing international audience highlights Reddit’s opportunity to strengthen its global presence and attract users across diverse communities.
Reddit is also focusing on improving user engagement and retention through personalized feeds, enhanced content recommendations and video experiences. Improvements in machine-learning-driven recommendations have strengthened content discovery. The percentage of new users returning within the first week after installing the Reddit app increased by more than 50% year over year. Logged-in and app DAUq also grew sequentially, reflecting improving engagement among its most valuable users.
Earnings Estimates for Reddit Show Upward Trend
RDDT’s expanding advertising portfolio and rising user engagement are expected to drive the company’s top-line growth.
For the fourth quarter of 2026, management expects revenues between $1 billion and $1.03 billion. The midpoint represents approximately 40% year-over-year growth. The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $1.02 billion, indicating year-over-year growth of 39.93%.
For the fourth quarter, the consensus mark for earnings is pegged at $1.76 per share, which has increased by a couple of pennies over the past 30 days. This implies year-over-year growth of 41.94%.
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 C.
In terms of the forward 12-month Price/Sales ratio, RDDT is trading at 4.03X, higher than the broader Zacks Internet - Software industry’s 3.84X, Pinterest’s 2.21X and Snap’s 1.25X. However, it is lower than Meta Platforms’ 5.09X.
RDDT Valuation
Image Source: Zacks Investment Research
Conclusion
Reddit’s prospects benefit from strong user engagement and an expanding advertising portfolio. However, the company faces search traffic volatility, rising costs and intense competition in the digital advertising space. Stretched valuation also remains a concern.
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.