Reddit Inc. (RDDT), the popular social media platform, experienced a significant 5.02% drop in its stock price during Tuesday's trading session. This plummet comes amid growing concerns about the company's lofty valuation and intense competition from industry giants.

According to a report by Zacks Investment Research, Reddit's shares are currently trading at a forward 12-month Price/Sales ratio of 18.19, which is higher than both its industry median and the broader sector average. This elevated valuation has raised eyebrows among analysts, who question whether the company's growth prospects justify such a premium.

While Reddit has shown impressive user growth, with daily active users increasing by 39% year-over-year in the fourth quarter of 2024, the company faces stiff competition from other social media platforms vying for a share of the lucrative advertising market. Meta Platforms (META), for instance, has been aggressively expanding its advertising offerings, posing a direct challenge to Reddit's ambitions in this space.