Reddit‘s RDDT shares have surged 33% in the year-to-date period compared with the broader Zacks Computer and Technology sector’s return of 23.8% and the Zacks Internet - Software sector’s rise of 21.2%.

The outperformance can be attributed to Reddit’s expanding portfolio and robust user growth, which has seen the platform attract more than 342 million active users and 91 million daily active users, marking more than 50% year-over-year growth.

In second-quarter 2024, the company focused on enhancing user experience with faster app performance, improved navigation and a new Ask Me Anything feature.

Will RDDT Benefit From a Strong Portfolio?

Reddit is diversifying its advertising solutions and enhancing ad efficiency, which has been a major growth driver for its success. 

In the second quarter, Ad revenues increased 41% year over year, driven by improvements in personalized ad loads and an expanding user base. New ad solutions like Dynamic Product Ads showed promising results, with early adopters reporting 2x higher returns on ad spend.

In the same quarter, RDDT expanded its partnership with Sprinklr CXM, integrating Reddit’s Data API and Ads API to enhance customer insights and advertising approaches. 

The collaboration allows Sprinklr users to leverage real-time Reddit conversations and ad solutions for improved brand engagement and Return on Investment.

In June, RDDT announced a partnership with Integral Ad Science IAS to bolster advertisers’ confidence in scaling its campaigns on Reddit through IAS’s AI-driven Total Media Quality product suite. 

The collaboration with IAS will provide trusted, third-party transparency and advanced measurement tools, safeguarding brand safety while maximizing campaign engagement across Reddit’s extensive communities.

Reddit is leveraging its vast content for search and AI, with partnerships like those with Alphabet GOOGL and OpenAI.

RDDT’s partnership with Google enhances content discovery on Reddit through the Data API, enabling structured access to dynamic public posts and comments while maintaining non-commercial usage guidelines.

Expanding international footprint has been noteworthy. About 50% of users are from outside the United States, with international daily active users increasing 44% year over year. Reddit is enhancing its global presence, particularly in France, India, the U.K. and the Philippines.

RDDT Q3 Guidance Positive

For third-quarter 2024, RDDT expects revenues to be between $290 million and $310 million.

The Zacks Consensus Estimate for third-quarter 2024 revenues is currently pegged at $310.09 million.

The consensus mark for earnings is currently pegged at a loss of 9 cents, down by a penny in the past 30 days.

RDDT - To Buy or Not to Buy?

Reddit’s stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.

The forward 12-month Price/Sales ratio for RDDT stands at 8.03X, higher than its Zacks Internet - Software sector’s 2.72X, reflecting a stretched valuation.

Reddit currently carries Zacks Rank #3 (Hold), suggesting that it might be wise to wait for a more favorable entry point in the stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Alphabet Inc. (GOOGL) : Free Stock Analysis Report

Sprinklr, Inc. (CXM) : Free Stock Analysis Report

Integral Ad Science Holding Corp. (IAS) : Free Stock Analysis Report

Reddit Inc. (RDDT) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research