Prediction: Reddit Will Beat the Market. Here's Why.
Over the course of 2024, the S&P 500 index generated a return of 17.7%. That represented an above-average year for the benchmark index. By contrast, however, shares of Reddit (NYSE: RDDT), which debuted on the stock market in March 2024, advanced 262%, and are up another 18% so far in 2025.
I predict that in 2025, Reddit will once again beat the market. Here's why.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »
Image source: Getty Images.
Understanding Reddit's business model
First, let's get a grip on what Reddit does and why its shares rose over the last 10 months.
Reddit is a social media network -- a collection of message boards -- each based around a particular topic, attraction, or pursuit. Whether it's movies, cooking, gardening, car repair, or just about any other pursuit, there's likely a Reddit board dedicated to the topic.
That makes Reddit a valuable source of information on the web -- and that's why Reddit is one of the most-visited websites on the planet. Indeed, according to Similarweb, a platform that analyzes website traffic, Reddit ranks No. 8 overall in web traffic, right between Wikipedia and ChatGPT, and ahead of giants like Amazon and TikTok.
So, clearly, Reddit is a major player on the internet, but that alone is not why its stock is rocketing into the stratosphere. Instead, it comes down to that old driver of stock market success: growth.
Reddit generates revenue through ad sales. And since the company's platform is already based on interests, it's easy for the company (and its advertisers) to get the right ads in front of the right users.
What's ahead for Reddit and why its stock can beat the market again
Clearly, the company's business model is already paying off.
In its most recent quarter (for the three months ending on Sept. 30, 2024), Reddit reported revenue of $348 million, up an eye-popping 68% from a year earlier. Moreover, daily average users (DAUs) increased by 47% to 97 million.
Looking ahead, the company plans to keep that blistering growth going in two ways, both of which involve artificial intelligence (AI):
First, Reddit is hard at work translating all of its existing content -- decades worth of posts -- from English into other languages. The company started with French, Spanish, German, Italian, and Portuguese, with plans to roll out automatic, real-time translation for another 25 languages this year. In doing so, the company hopes to grow its international audience.
Second, Reddit's Corpus -- its enormous cache of data -- is itself an enormously valuable asset. That's because AI models need to be trained on tremendously large datasets. Therefore, it's likely that AI developers may look to license Reddit's Corpus to help train the next generation of AI models -- providing Reddit with another lucrative revenue stream in addition to advertising. Indeed, Alphabet, the parent company of Google, already inked a similar deal with Reddit last year.
Reddit has several paths to success. It is growing its user base, expanding into foreign markets, and ramping up its ad business. That alone will support its stock price over the next year. What's more, given the potential for lucrative partnerships with AI developers, Reddit stock appears positioned to beat the market.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $334,473!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $45,122!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $524,100!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of January 27, 2025
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jake Lerch has positions in Alphabet, Amazon, and Reddit. The Motley Fool has positions in and recommends Alphabet and Amazon. The Motley Fool has a disclosure policy.
