Reddit (RDDT) stock slumped Thursday after RBC Capital Markets said it received mixed feedback from ad agencies about the company's advertising performance.
In a client note, RBC analyst Brad Erickson said check-ins with small- and medium-sized business ad agencies were positive for digital advertising leaders Meta Platforms (META) and Google parent Alphabet (GOOGL). But the picture for Reddit was more mixed, Erickson said.
For Reddit, "feedback was challenging," Erickson wrote. "Inexpensive CPMs (cost-per-mille, or 1,000 impressions) generally matching up with conversion levels with small/less well-known brands seeing relatively lower performance. Recognition of Reddit's importance for large language model discovery remains but we found instances where ROI (return on investment) for organically building a presence — by a person — viewed as higher than ad spend."
Erickson said he expects upside to Reddit's estimates but cautioned that "much is expected" and a renewal of the company's AI licensing deal with Google is not likely until 2027. Meanwhile, Erickson noted that an AI-powered Max Campaign offering for advertisers on Reddit is still in "early days." Erickson rates Reddit stock as market perform, or neutral