Reddit Expands Commerce Ad Stack: Is the Growth Thesis Accelerating?

Reddit RDDT is expanding commerce-focused ad infrastructure as the social networking platform provider 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, showing growing traction among advertisers looking to improve their return on investment. 

Reddit’s push to attract more conversion-focused advertisers is a key catalyst. Innovative solutions like Dynamic Product Ads (DPAs), which allow brands to deliver personalized product creatives using real-time catalog feeds and machine learning, have been driving growth. Built for retail and CPG advertisers, these ads scale across commerce-focused subreddits to improve product visibility and generate higher return on ad spend.

To support easier adoption, Reddit introduced tools like the Meta campaign import feature and expanded its Smartly.io integration. These updates help simplify campaign setup and management, allowing brands to scale performance efforts more efficiently.

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.

Reddit Faces Stiff Competition in Ad Space

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 Snap’s high-engagement user base. Its traction in mobile-first, Gen Z-focused verticals increasingly overlaps with Reddit’s performance campaigns across interest-based communities.

Alphabet is reinforcing its presence through Google Ads and YouTube’s shopping integrations. With advanced AI and machine learning models, Alphabet enables advertisers to optimize for intent and conversion. GOOGL’s large-scale reach poses a strong challenge to Reddit’s growing commerce stack.

Reddit’s Share Price Performance, Valuation and Estimates

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.

RDDT's YTD Price Performance

Reddit 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.

RDDT's Valuation

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.

Reddit Inc. Price and Consensus

Reddit Inc. price-consensus-chart | Reddit Inc. Quote

 
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. The figure marks an improvement over fiscal 2024’s loss of $3.33 per share.

Reddit currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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