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Recession risks are picking up in 2025, with concerns around tariffs and slowing consumer demand driving greater interest in defensive equities and less interest in the growth stocks that drove the market to new highs in 2024. Magnificent 7 stocks are in the red as even some of investors’ favorites have been unable to shake concerns that a prolonged economic and market contraction is just ahead.
Reddit (RDDT) is another growth-oriented company that has experienced a selloff in the year to date. The company hit a new 52-week high of $230.41 on Feb. 10 but has since plunged more than 50%. The stock is down nearly 32% since the start of the year and is trading near $110 as of March 26.
Now, investors must try to find out where the stock is headed next. My personal belief is that any significant downturn in a high-quality stock, like the one we have seen in Reddit, is worth exploring.
What’s Behind the Decline in Reddit Stock?
Looking at Reddit’s decline, it’s worth keeping things in perspective. Reddit is down considerably from its recent peak. But shares are still up nearly 94% over the past 52 weeks.
So, as is the case with many near-term price surges, investors appear to have bid up shares too far, too fast heading into Q4 earnings. Its final-quarter results were one company-specific catalyst for the decline.
Despite Reddit posting better-than-expected earnings per share this past quarter, Reddit reported daily active users of 101.7 million, missing analyst estimates. This has at least partially been attributed to changes in Alphabet’s (GOOGL) Search algorithm.
Reddit’s value is, in large part, driven by its ecosystem of engaged users. If this key growth driver is breaking down, the company’s appeal could also break down.
And it doesn’t help that Reddit insiders appear willing to hit the bid, with the company’s CEO recently selling shares in multiple transactions in 2025.
Reading the tea leaves isn’t necessarily my specialty, so let’s dive into the numbers and see what could be ahead for Reddit.
The Numbers Look Solid
At least compared to other social media stocks, Reddit’s impressive EPS growth of 138% is notable, with Reddit now posting back-to-back quarters of positive net income. The company appears set to become what many hope could be a cash cow in the social media space over the long term.
Indeed, the trend is certainly moving in the right direction on these high-level metrics. I tend to like companies that grow their bottom lines faster than their top lines, as this indicates improving margins and operational efficiency.
Additionally, I think it’s worth pointing out that Reddit’s sales growth has been relatively steady. And despite the recent concerns over daily active users missing estimates, that could simply be a normalization trend, with future quarters seeing higher engagement as the ebbs and flows of the social media world evolve. Reddit did note some positive trends with regards to the Google algorithm seen near the end of last quarter, so we’ll ultimately have to wait for the next few quarterly reports.
What Do the Analysts Think?
In the case of Reddit, Wall Street analysts still appear to be rather bullish on the future trajectory of the social media giant. As investors will note below, the company’s relative strength in terms of the number of buys versus sells has deteriorated over the past three months. But with a consensus average price target just shy of $195 per share, Wall Street sees plenty of upside potential ahead.
Again, I think plenty is riding on the company’s ability to outperform in the coming quarters, and Reddit’s upcoming numbers are very likely going to be scrutinized by the Street.
But if the social media giant can show strong underlying fundamentals, its valuation doesn’t necessarily look stretched to me, particularly after this recent decline. That could make RDDT a buy on the dip.
