Core Viewpoint - Reddit (RDDT) shares have declined 26.5% year-to-date, underperforming the broader Zacks Computer & Technology sector's decline of 11% and the Zacks Internet - Software industry's rise of 5.8% [1] Group 1: Performance and Market Conditions - The underperformance of RDDT is attributed to a worsening macroeconomic environment following U.S. tariffs on trading partners, including China and Mexico, and intense competition from other social media platforms affecting user engagement and market share in advertising [2] - Reddit experienced volatility due to a periodic algorithm change by Google Search in Q4 2024, which affected traffic primarily for logged-out users [3] Group 2: Revenue and Growth Drivers - RDDT is benefiting from strong user growth, improved advertising performance across multiple channels, and significant investments in AI-driven tools and machine translation, with advertising accounting for 91.2% of Reddit's 2024 revenues totaling $1.3 billion [7] - The company's focus on diversifying its advertising solutions and enhancing ad efficiency has emerged as a critical growth driver [8] Group 3: Product Development and User Engagement - Reddit's expanding advertising product portfolio includes AI-powered tools like the Headline Generator and Reddit Pro Trends, which help businesses gain real-time insights and grow organically on the platform [9] - In March 2025, Reddit introduced tools to enhance user engagement, including a post-check to prevent rule violations and a post-recovery feature for retrieving removed content [10] Group 4: Partnerships and New Initiatives - Reddit's partnership with Alphabet (GOOGL) enhances content discovery and community engagement by providing access to Reddit's Data API, benefiting both companies [11] - In December 2024, Reddit announced testing of "Reddit Answers," an AI-powered chatbot that provides curated summaries and community recommendations [12] - In February 2025, Reddit partnered with Intercontinental Exchange to create data and analytics products for the financial industry, leveraging its extensive user-generated content [14] Group 5: Earnings Estimates and Competition - For Q1 2025, RDDT expects revenues between $360 million and $370 million, with a Zacks Consensus Estimate of $327.70 million, indicating year-over-year growth of 53.40% [15] - Despite RDDT's expanding advertising business, it faces stiff competition from Snap (SNAP), which is enhancing its advertising offerings with new formats like Sponsored AI Lenses and tools like Snap Pixel [16][17]

Alphabet (GOOGL) is a behemoth in the digital advertising market in which Reddit (RDDT) is the latest challenger. Increasing deployment of AI and machine learning are driving content creation, while chatbots and virtual assistants are helping advertisers offer personalized user interactions and content personalization. These benefit both GOOGL and RDDT stocks. Both are expected to benefit from growing digital advertising spending, which, per eMarketer, expects to surpass 80% share of total ad spending in 20 ...