Reddit's Price Surge: Undervaluation Checks and DCF Model

Reddit's stock has surged 122% in the past 90 days, driven by renewed meme stock interest and the company's plans to stay at the forefront of digital platforms. Analysts remain cautious, but growth-seekers are attracted to the 23.9% yearly revenue and 37.2% net income growth. Our valuation scorecard gives Reddit a 2 out of 6 for key undervaluation checks, but a DCF model estimates the company's true worth by projecting future free cash flows and discounting them back to today's value.

Reddit's stock (RDDT) has experienced a remarkable surge of 122% over the past 90 days, driven primarily by renewed interest in meme stocks and the company's ambitious plans to maintain its position at the forefront of digital platforms. This surge has been accompanied by a cautious yet optimistic outlook from analysts, who have been closely monitoring the company's financial performance.

The company's financial growth has been notable, with a 23.9% increase in yearly revenue and a 37.2% rise in net income. Despite these positive indicators, analysts remain cautious, citing potential risks and uncertainties. One such risk is the company's reliance on Google Search for a significant portion of its user traffic, which has been affected by Google's implementation of new AI capabilities such as AI Overview [1].

On May 1, 2025, Reddit issued an earnings release revealing that the company had experienced three consecutive quarters of deceleration in daily active user growth. This revelation led to a significant drop in the stock price, falling $4.96 per share, or 4.2%, from a closing price of $118.79 per share on May 1, 2025, to $113.83 per share on May 2, 2025 [1].

Following the earnings release, several analysts downgraded Reddit's stock. Wells Fargo analysts lowered their price target to $115 per share from $168 per share, citing Google Search's new AI features as a likely "permanent" disruption to user traffic [1]. Baird analysts also downgraded the stock, reducing the price target to $120 per share from $140 per share, and noted similar concerns about Google's AI developments [1].

Despite these challenges, growth-seekers remain attracted to Reddit's strong financial performance. The company's valuation scorecard gives Reddit a 2 out of 6 for key undervaluation checks, but a Discounted Cash Flow (DCF) model estimates the company's true worth by projecting future free cash flows and discounting them back to today's value [2].

For investors who purchased or otherwise acquired Reddit shares and suffered a loss, or have any questions concerning this announcement or their rights or interests, Bragar Eagel & Squire, P.C. encourages them to contact Brandon Walker or Marion Passmore directly at (212) 355-4648 [1].

References:
[1] https://www.globenewswire.com/news-release/2025/08/17/3134673/0/en/REDDIT-FINAL-DEADLINE-ALERT-Bragar-Eagel-Squire-P-C-Reminds-Reddit-Investors-of-the-August-18th-Deadline-for-the-Class-Action-Suit.html
[2] https://www.reddit.com/r/MemeStockMarket/