Why Did Reddit Stock Drop 10%?

CHONGQING, CHINA – JULY 29: In this photo illustration, a smartphone displays the logo of Reddit Inc. (NYSE: RDDT), a popular American social media and discussion platform known for its user-generated content and influential online communities, in front of a screen showing the company’s stock market chart on July 29, 2025 in Chongqing, China. (Photo illustration by Cheng Xin/Getty Images)

Getty Images

Reddit stock (NYSE:RDDT) dropped nearly 10% in the past week, in contrast to the nearly stable performance of the S&P 500 Index. The fluctuations in Reddit’s stock price are particularly notable when compared to its competitors, including Meta Platforms – which fell about 3% during the week, Snap – gaining around 8%, and Pinterest – which dropped approximately 3%.

The decline is indicative of investor worries regarding slower user growth and possible traffic challenges related to updates in Google’s search algorithms and AI-generated responses, which may impact engagement and advertising capacity on the platform. With the current share price hovering around $237, we believe Reddit could experience short-term challenges before stabilizing. Importantly, the stock is still significantly higher compared to its IPO valuation from early 2024 and has increased by 45% since late 2024, as outlined in our analysis of Why Reddit Stock Moved.

However, for those looking for growth with less volatility than owning a single stock, the High Quality Portfolio is worth considering. It has significantly outperformed its benchmark, which consists of the S&P 500, Russell, and S&P MidCap indexes, achieving returns of over 91% since its launch. As a whole, the stocks in the HQ Portfolio have generated superior returns with reduced risk compared to the benchmark index; offering less of a tumultuous experience, as shown in HQ Portfolio performance metrics. Additionally, don’t miss – Uber Stock To $200?

Elements Affecting Changes in Reddit’s Stock Over Recent Years

Some of the increase in Reddit’s stock since its IPO can be attributed to the approximately 30% rise in its revenues from 2022 to 2024. Revenue growth surged in 2023 due to the introduction of new ad products and licensing agreements, and this trend continued into 2024 with ongoing growth in advertising and AI-related data licensing. Nevertheless, growth started to slow somewhat in early 2025 amid worries regarding traffic sources and user engagement patterns.

Although Reddit has experienced steady revenue growth, its PS multiple has not broadened significantly. The company’s PS multiple rose from around 10x in 2024 to almost 12x by mid-2025. While the company’s PS is currently above historical averages, there may be potential downside when comparing the current multiple to previous peaks – roughly 15x in late 2024 and closer to 9x as recently as early 2023.

Anticipating Future Performance of Reddit’s Stock

In its latest quarter, Reddit declared revenue of approximately $240 million, reflecting an increase of more than 20% year-over-year, and recorded its second quarterly profit since its IPO. However, the daily active users count of 100 million was slightly under optimistic forecasts, raising concerns about market saturation and competition.

For the full year of 2025, Reddit has projected revenue growth in the mid-20% range, but remarks regarding traffic uncertainty have made investors cautious. If the company can demonstrate resilience in user engagement and continue to enhance its ad products, the stock could potentially regain its upward trajectory. However, in the short term, volatility is expected to remain as investors weigh high valuation multiples against execution risks.

The Trefis High Quality (HQ) Portfolio, featuring a selection of 30 stocks, has a history of consistently outperforming its benchmark inclusive of all three – S&P 500, Russell, and S&P midcap — and has generated returns above 91% since its inception. What accounts for this success? As a collective, the stocks in the HQ Portfolio deliver better returns with reduced risk compared to the benchmark index; resulting in less of a tumultuous experience, as shown in HQ Portfolio performance metrics.