Reddit (RDDT) has been making significant strides in expanding its commerce-focused advertising infrastructure as it shifts from community-led discovery to full-funnel performance marketing. In the first quarter of 2025, advertising revenue rose 61% year over year to $358.6 million, driven by this transition. Performance campaigns accounted for 60% of total ad spend, indicating growing traction among advertisers looking to improve their return on investment.
One of the key drivers of Reddit's growth is its innovative solutions like Dynamic Product Ads (DPAs). These ads allow brands to deliver personalized product creatives using real-time catalog feeds and machine learning, and are designed specifically for retail and CPG advertisers. By scaling across commerce-focused subreddits, DPAs improve product visibility and generate higher return on ad spend. To support easier adoption, Reddit has introduced tools like the Meta campaign import feature and expanded its Smartly.io integration, which help simplify campaign setup and management, allowing brands to scale performance efforts more efficiently.
The adoption of Reddit's performance tools continues to grow. Over 90% of managed advertisers used Reddit's Pixel for conversion tracking in the first quarter, while revenue tied to Conversion API (CAPI) more than tripled year over year. With this foundation in place, Reddit's expanding ad stack is positioned to support long-term growth across commerce-driven verticals.
However, despite its growth, Reddit faces rising competition from Snap (SNAP) and Alphabet (GOOGL), both of which are scaling their performance advertising infrastructure and audience targeting tools. Snap is expanding its commerce capabilities with features like Dynamic Ads and improved conversion APIs, helping advertisers deliver personalized creatives across its high-engagement user base. Alphabet is reinforcing its presence through Google Ads and YouTube's shopping integrations, enabling advertisers to optimize for intent and conversion with advanced AI and machine learning models.
In terms of share price performance and valuation, Reddit shares have declined 17.9% year to date, while the broader Zacks Computer & Technology sector and the Internet Software industry increased 0.9% and 11.2%, respectively. The stock is trading at a premium, with a forward 12-month Price/Sales of 11.78X compared with the industry's 5.62X. RDDT has a Value Score of F.
The Zacks Consensus Estimate for second-quarter 2025 earnings is pegged at 19 cents per share, unchanged over the past 30 days, implying an improvement from the year-ago quarter's loss of 6 cents per share. The consensus mark for Reddit's fiscal 2025 earnings is pegged at $1.21 per share, which has remained unchanged over the past 30 days. This figure marks an improvement over fiscal 2024's loss of $3.33 per share.
In conclusion, Reddit's push into commerce-focused advertising infrastructure is paying off, with significant growth in advertising revenue and adoption of its performance tools. However, the company faces stiff competition from Snap and Alphabet in the ad space. Despite its premium valuation and recent share price decline, Reddit remains a compelling investment opportunity for those looking to capitalize on its growing commerce stack and innovative advertising solutions.
