Reddit's revenue and forecast came in above expectations because of AI. Why did the stock fall?

Internet forum Reddit beat analysts' revenue expectations and also gave a strong outlook for the current quarter. The introduction of artificial intelligence is helping the company attract more advertisers. Investors were initially excited about Reddit's results, but analysts cooled their enthusiasm, which resulted in the quotes fluctuating from a 9% increase to a 6% drop.

Reddit reported revenue growth of 70% in the fourth quarter of 2025 - up to $726 million. The result exceeded the forecast of Wall Street analysts in $666 million notes Barron's. In addition, the forecast for the current, first quarter of 2026 was better than expected: from $595 million to $605 million, while Wall Street assumed $577 million.

Against this backdrop, Reddit's board of directors approved a $1 billion share repurchase program, with the company not setting a specific number of shares to be bought or a timeline for implementation.

Reddit also reported a 19% increase in global daily unique active users (DAUq) to 121.4 million, exceeding Wall Street's expectations of 120 million, CNBC notes. Investors are keeping a close eye on DAUq because registered users are more useful for the online advertising business: they are more likely to interact with content and communities than visitors who came through search without authorization, CNBC explained. That said, Reddit plans to phase out separate reporting on authorized and unauthorized users this year as the distinction between the two becomes less meaningful, CEO Steve Huffman said.

The addition of artificial intelligence to Reddit's advertising platform is helping the company attract more advertisers, writes Reuters. The company allows ads to be placed right inside sabreddits (forum threads), and brands want access to an extremely engaged and niche audience who discuss topics related to their products and services, the agency explained. Reddit's active advertiser base grew by more than 75% last quarter, it reported.

In doing so, Reddit is reaping the benefits of AI without incurring any of the costs of using it, Barron's CFO Drew Vollero noted separately in a commentary. "You read a lot about other companies spending hundreds of billions of dollars in capital expenditures. Our capital expenditures in the fourth quarter were $3 million," Vollero added.

Strong reporting results allowed the company's shares to start trading on February 6 with a growth of 8.8% - up to $164.4. However, immediately after that quotations began to decline and eventually fell to $142.08 - it is 6% less than the closing price a day earlier. After that the securities partially recovered the losses.

Bank of America on Friday lowered its target price on Reddit stock to $205 from $210 and maintained a neutral rating. The bank raised its outlook given strong demand from advertisers, but lowered its target due to deteriorating multiples in the online media sector, Tipranks writes.

Analysts at Goldman Sachs lowered their target price on Reddit's stock from $236 to $206 and maintained a neutral rating, explaining that the company's future growth will be closely tied to trends in the digital advertising and AI market, Tipranks reported.

The majority of analysts (21 out of 33) believe Reddit's securities are worth buying (Buy and Overweight ratings), MarketWatch data show. At the same time, 11 recommend Hold, while one analyst recommends Sell. The average target price is $243.7, suggesting a potential upside of 61% from the stock's closing price a day earlier.

This article was AI-translated and verified by a human editor