Reddit RDDT shares have plunged 41.4% in the year-to-date period, underperforming the broader Zacks Computer & Technology sector’s 7.5% decline. The Zacks Internet – Software industry has decreased 18.5% in the same time frame.
The company’s shares have also underperformed its peers, which include Meta Platforms META and Alphabet GOOGL, which are also expanding into advertising to compete in the rapidly growing digital ad market. Meta Platforms and Alphabet shares have lost 13.3% and 8.1%, respectively, in the year-to-date period.
The underperformance can be attributed to a challenging macroeconomic environment, including elevated tariffs, which may reduce discretionary ad spending. Stiff competition also remains a concern.
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However, the company’s strong user engagement, including rising daily and weekly active users, gains in Average Revenue Per User (ARPU) and the expansion of advertiser tools such as Dynamic Product Ads (DPA), Reddit Pixel and CAPI have been noteworthy. In the fourth quarter of 2025, ARPU increased 42% year over year to $5.98, indicating that portfolio expansions are driving higher monetization per user.
Reddit’s expanding portfolio has been noteworthy. The company’s success in its diversified advertising portfolio has been a key catalyst. In the fourth quarter of 2025, Advertising revenues surged 75% year over year to $690 million.
The introduction of new ad formats, like DPA and Reddit Max campaigns, has further bolstered advertiser adoption and improved return on ad spend (ROAS). The introduction of DPA has been particularly impactful, with strong performance during key shopping periods like Black Friday and Cyber Monday. Improvements to DPA’s machine learning models have led to a 75% increase in advertiser ROAS in the fourth quarter of 2025. This development makes Reddit a strong competitor in the shopping ads market.
Further expanding its portfolio, in March 2026, Reddit expanded its shopping features by introducing better Dynamic Product Ads, which included Collection Ads and community-driven overlays. The company also launched a Shopify integration to make onboarding easier and improve targeting. These updates follow strong growth in high-intent shopping and a significant increase in ROAS. This positions Reddit as a more valuable but still underused e-commerce channel.
Reddit is benefiting from its investment in AI-powered tools, which are increasing user engagement and advertising revenues. In the fourth quarter of 2025, Reddit reported 121 million daily active users, reflecting a 19% year-over-year increase, and 471 million weekly active users, marking 24% year-over-year growth.
The company has integrated AI-powered features, such as Reddit Answers, into its platform to enhance user experience and engagement. In the fourth quarter of 2025, Weekly search activity on Reddit increased significantly, with more than 80 million people searching directly on the platform, up from 60 million a year ago. Reddit Answers, the AI-powered search feature, saw growth in queries, increasing from 1 million to 15 million over the year.
