Some stock drops present meaningful long-term buying opportunities for patient investors who can ignore the noise. Reddit (RDDT +0.55%) looks like one of those growth stocks. It's down by more than 30% year to date, but its fundamentals show rising revenue and more users.
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The fear of AI is overblown
Artificial intelligence (AI) has helped many industries, but some people believe this same technology can hurt Reddit's business. The premise is that generative AI models and advanced search engines can cut into Reddit's traffic, especially since Reddit has no control over what results those search engines display.
NYSE: RDDT
Key Data Points
For instance, analysts reported that Alphabet's search snippets prioritized YouTube over Reddit in search results. While it is a legitimate concern, Reddit's first-quarter 2026 earnings results indicate it is overblown.
Reddit wrapped up Q1 with 126.8 million daily active users, which is up by 17% year over year. Its user base is growing faster than most social networks, which will make it less reliant on search engines over time. Further, Reddit boosted revenue by 69% year over year while achieving a 30.8% net profit margin.
Reddit didn't even voice concerns in its guidance. The social media giant projects $720 million in Q2 revenue at the midpoint, which implies a 44% year-over-year improvement. Sure, it's a deceleration from the Q1 growth rate, but it's still a much higher growth rate than Meta Platforms and Alphabet get nowadays.
Reddit is winning the content landscape
Reddit makes most of its money from online advertising, but its library of content is also an AI gold mine. OpenAI and Alphabet use Reddit content to train their AI models, and these licensing deals offer annual recurring revenue. Reddit highlighted in its Q1 2026 shareholder letter that its communities create more content in one month than Wikipedia has created in its existence, giving it a vast moat.
This part of Reddit's business, lumped into "other revenue," grew by only 15% year over year, but it is a high-margin business. Reddit doesn't even have to do additional work to produce content since it is generated by users.
All of that content has also turned Reddit into a unique platform where people can receive answers to their questions. While search engines can provide informative articles, videos, and podcasts, Reddit provides personalized stories, Q&A, and how-to guides from individuals.
This platform experience explains why people keep coming back. Not only does Reddit have 126.8 million daily active users, but it also reached 493.1 million weekly active users, which is up by 23% year over year.
The user base isn't even enough to determine Reddit's true visibility. That's because logged-out users grew by 26% year over year, while logged-in users grew by 7%. Reddit's daily and weekly active user metrics only include logged-in users.
This doesn't sound like a business that is losing market share. Reddit's recent results and long-term performance show a company that is gaining ground in the social media landscape. In the meantime, the current dip presents a buying opportunity.
