Last Update 06 Feb 26

Fair value Increased 0.48%

RDDT: Future Returns Will Rely On AI Data Licensing Economics

Narrative Update

Analysts have nudged our Reddit fair value estimate higher by about US$1 to US$252. They cite refreshed models that reflect Street price target increases, a slightly lower discount rate, modestly higher revenue growth assumptions, a small adjustment to profit margin, and a similar forward P/E framework.

Analyst Commentary

Recent Street research on Reddit clusters around higher price targets and fresh initiations, with most commentary focused on how the company executes against growth, monetization, and AI opportunities over the next few years.

Bullish Takeaways

Bullish analysts are lifting price targets into the US$265 to US$320 range, reflecting confidence in Reddit's ability to grow into a premium valuation if it can translate its user base into stronger monetization.
Some see room for Reddit to raise average revenue per user, pointing to industry peers, recent product launches, and feedback from advertisers as support for a higher long term revenue profile.
Multi year growth expectations are ambitious, with one research house citing a three year revenue CAGR of 30% to 40% and EBITDA CAGR of 40% to 50%, which they view as supporting a higher multiple.
AI and data licensing are front and center in several reports, with 2026 flagged as an important period as AI search products gain traction and data deals come up for renewal, which could be meaningful for Reddit's earnings power.

Bearish Takeaways

More cautious analysts highlight that after strong share price performance in 2025, the current valuation already embeds a bullish outlook, which can limit upside if execution is only in line with expectations.
Some research points to soft app traffic data, which keeps a closer focus on whether newer onboarding and product changes actually convert into sustained logged in daily active user growth.
Equal Weight or Neutral stances stress that while Q4 and Q1 may be solid, Reddit still needs to prove that its growth runway and AI related initiatives translate into durable returns on invested capital rather than just higher expectations.
A few reports imply that Reddit's premium valuation leaves less room for error around ad market conditions, user engagement trends, and the timing or economics of future AI and data licensing agreements.

What's in the News

Reddit issued earnings guidance for Q1 2026, projecting revenue between US$595 million and US$605 million, giving investors a sense of the near term top line outlook.
The Board of Directors authorized a share repurchase program of up to US$1.0b of Class A common stock with no expiration date, adding a new capital allocation lever for Reddit.
Emplifi announced a partnership that plugs Reddit’s Enterprise API into its analytics and execution platform, using Reddit community data as a signal for brand insights and campaign planning.
Bombora and Reddit partnered to bring B2B audience targeting to Reddit, giving advertisers access to firmographic, behavioral, and intent based segments when reaching business decision makers.
Regulatory scrutiny of rival social platforms and AI tools, including probes into explicit content on X’s Grok chatbot and EU discussions about easing GDPR rules for AI, continues to shape the broader policy backdrop for social media and data usage. This backdrop also includes Reddit among affected peers (CNBC, Politico).

Valuation Changes

Fair value estimate nudged higher from US$251.19 to US$252.39 per share, a small upward adjustment in the model output.
Discount rate edged down from 8.24% to 8.21%, reflecting a slightly lower required return in the updated assumptions.
Revenue growth raised modestly from 34.40% to 34.93%, indicating a small uplift in projected top line expansion.
Net profit margin trimmed from 32.97% to 32.47%, a minor pullback in the long-term profitability assumption.
Future P/E adjusted slightly from 45.34x to 45.68x, keeping the valuation framework broadly consistent while fine-tuning the multiple.

Growth in user engagement, advertising, and international markets drives strong long-term revenue and monetization opportunities for Reddit.
Unique user data and enhanced search bolster high-margin licensing and sustained platform retention, supporting future earnings expansion.
Reliance on digital ads, global expansion hurdles, moderation risks, uncertain data licensing revenue, and competition for young users threaten Reddit's growth and profitability.

Catalysts

About Reddit

Operates a digital community in the United States and internationally.What are the underlying business or industry changes driving this perspective?

The ongoing shift toward platforms built on user-generated content gives Reddit significant headroom for future user and engagement growth, as evidenced by continued DAU increases, the adoption of tools like Reddit Answers, and successful international launches; these factors all support prospects for long-term revenue expansion and increased monetizable impressions.
As digital advertising budgets increasingly prioritize highly engaged, niche communities, Reddit's 84% YoY ad revenue growth, broadening advertiser base, and introduction of formats like Dynamic Product Ads position it to capture a greater share of this secular trend-potentially lifting revenue and net margins over time, especially as ad stack improvements enhance advertiser ROI.
The value of Reddit's data for AI/LLM training is gaining wider recognition, as demonstrated by their data licensing deals and status as a top-cited source for LLMs; Reddit's growing corpus and unique conversation base position the company to expand high-margin data licensing revenues in the years ahead.
Investment in search and discovery tools, including the unification of Reddit's core and LLM-based search, is expected to drive deeper retention and time-on-site metrics, which are key to supporting higher ARPU and sustaining long-term earnings growth.
International expansion accelerated by machine translation and localized community-building initiatives has just begun to show results, with early successes in non-English markets pointing to untapped user and advertiser growth drivers that could have a meaningful positive impact on future revenue and earnings.

Reddit Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Reddit's revenue will grow by 31.8% annually over the next 3 years.
Analysts assume that profit margins will increase from 13.0% today to 26.5% in 3 years time.
Analysts expect earnings to reach $1.0 billion (and earnings per share of $4.72) by about August 2028, up from $216.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.2 billion in earnings, and the most bearish expecting $370.6 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 55.9x on those 2028 earnings, down from 183.2x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 16.3x.
Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.01%, as per the Simply Wall St company report.

Reddit Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Heavy dependence on digital advertising revenue, with 84% year-over-year growth in Q2, exposes Reddit to risks from declining online ad efficacy due to privacy changes (like cookie deprecation and ad tracking restrictions) and economic downturns, potentially impacting future revenue growth and margins.
International expansion, while showing early promise, still relies heavily on machine-translated content and nascent local communities; failure to achieve true local relevance and user-generated content in non-English markets could limit Reddit's total addressable market and long-term user growth, directly affecting future revenue potential.
Scaling active moderation and content quality remains a challenge-Reddit's diverse, user-generated platform faces ongoing risks around content moderation, community standards, and potential regulatory scrutiny, which could lead to increased compliance costs, negative publicity, or advertiser pullback, ultimately compressing net margins and impacting earnings.
Data licensing, though highlighted as a strategic opportunity, is a small portion of current revenues ($35 million out of $500 million in Q2) and there remains high uncertainty about the durability, exclusivity, and competitive landscape for AI training data deals, possibly capping earnings diversification if this segment stalls or competition increases.
Intensifying competition for user engagement from platforms catering to evolving generational preferences (e.g., TikTok, Discord, visually-oriented or ephemeral services) may erode Reddit's relevance among younger users; if Reddit fails to successfully evolve its product or onboarding experience, it risks DAU stagnation or decline, directly undermining long-term earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $195.962 for Reddit based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $235.0, and the most bearish reporting a price target of just $75.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.8 billion, earnings will come to $1.0 billion, and it would be trading on a PE ratio of 55.9x, assuming you use a discount rate of 8.0%.
Given the current share price of $211.82, the analyst price target of $195.96 is 8.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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