Reddit just had a phenomenal second quarter in 2025, and the market went wild for it. We saw the stock jump as much as 20% after they announced incredibly strong sales and guidance. As someone who keeps a close eye on the market, I saw my feed light up. The stock is up nearly 7% today alone, and an incredible 32.74% in the last five days. That kind of movement always makes me ask the big question: is this a fleeting sugar rush, or is it time to buy in for the long haul?
The Bull Case: Why Reddit is Roaring
Let's break down the good news, because there's a lot of it. Revenue in Q2 grew an astounding 78% year-over-year, which was 17% above what analysts expected—their biggest beat since going public. This wasn't just a fluke quarter. The company is incredibly bullish about its own future, forecasting a massive 54% to 56% year-over-year revenue growth for Q3.
That forward-looking guidance is huge. I’ve seen plenty of companies, like Spotify recently, have a decent quarter but then get hammered by the market because they lower expectations for the next one. Reddit is doing the opposite. They’re telling investors that the good times are set to continue, which has fueled a massive wave of buying.
Beyond the numbers, you have to understand what Reddit is. It’s not just another social media site; it has essentially become the modern-day forum for everything. People are so invested in the user-generated content that they’ll literally add “Reddit” to their Google searches to get real, human consensus on topics. In that sense, it's a competitor to search giants and even AI chatbots.
When I look at the financials, I see a growth stock that's outperforming the gold standard, the S&P 500 (VOO), on a year-to-date and one-year basis. Its balance sheet looks healthy, with $2.63 billion in assets versus only $245 million in liabilities. And from a company culture perspective, things look solid. With a 3.9 out of 5-star rating on Glassdoor and 72% of employees approving of the CEO, it seems like a well-run organization.
The Red Flags: Why I'm Hesitant
Now, for the other side of the coin. For all its success, Reddit's business model is fundamentally a one-trick pony: advertising. Everything hinges on attracting millions upon millions of users and keeping them engaged. They don't sell their own products, and while they have premium subscriptions, that's mainly just to remove the ads that are their primary source of income. My biggest question is: what else can they do?
This leads me to some of the more concerning metrics. The Price-to-Earnings (P/E) ratio is astronomically high. Depending on where you look, it's somewhere between 159 and a staggering 17,816. To put that in perspective, many investors look for a P/E ratio in the 20-30 range. While tech companies often have higher P/Es, Reddit's is in the stratosphere.
An even more telling metric for me is the EV to EBITDA ratio, which gives a rawer picture of a company's value. According to my research on GuruFocus, Reddit's ratio is 225.66, which is worse than 99.2% of the other 374 companies in the interactive media industry, where the median is just 11.89. The NASDAQ's forward PEG ratio for Reddit is 4.78, and anything over a 2 is often considered overvalued. These numbers suggest that, at its current price, the stock might be significantly overvalued relative to its earnings and growth.
Finally, while analysts have a 62% “buy” score, there's a substantial 34.5% “hold” rating, which tells me I'm not the only one with some reservations.
My Verdict: It's a “Hold” For Me
So, after looking at all the angles, I'm personally labeling Reddit as a “hold.”
Here's my reasoning: there's no denying the company's impressive growth and its powerful position in the social media landscape. If I already owned the stock, I would certainly hold on to it. However, I have some serious concerns about the current entry point. Buying a stock after it has shot up over 30% in a week is often a recipe for a short-term loss. There's a very real chance of a price correction as the initial excitement from the Q2 earnings fades and investors start to take their profits.
My biggest long-term reservation comes back to their business model. What is the next big thing for Reddit? Are they going to innovate and create new revenue streams, or just hope to keep growing user numbers and ad revenue indefinitely? Without a clear answer to that, I see a potential ceiling.
For my portfolio, the combination of a sky-high valuation and questions about future diversification makes it too risky to buy right now. The growth is undeniable, but the price may have gotten ahead of itself. I'll be keeping a close watch on Reddit, but for now, I'm staying on the sidelines.