Key insights
- Cleveland Research upgraded its outlook on Reddit (RDDT), citing improved advertiser activity and spending, particularly in mid-funnel campaigns. The firm raised revenue estimates above consensus for Q2 and FY26, driven by new customer acquisition and potential market share gains from competitors. The connection to large language models is seen as a positive driver for advertiser interest. While direct response advertising shows mixed results, overall sentiment suggests a bullish outlook for Reddit's advertising business.
Midwest Boutique Positive on Reddit (NYSE: RDDT).
Reddit Inc. (NYSE: RDDT) has seen improvements in its advertising business with increased new customer activity and expanded spending from existing advertisers, according to Cleveland Research.
The research firm reported that 45% of advertisers exceeded return on investment targets in the second quarter, compared to 37% in the previous quarter. The improvement was driven by stronger performance in mid-funnel advertising campaigns.
New customer pipeline conversion has improved compared to earlier concerns about macro-driven advertising budget cuts. The growth appears across multiple industry sectors including retail, financial services, business-to-business, and gaming applications.
Direct response advertising showed modest progress in isolated areas including financial services, technology, and e-commerce, though results remain mixed overall. Cleveland Research noted that broader adoption of Conversions API would likely be needed before this segment becomes material.
Reddit Max, the company's advertising tool, remains in early adoption phases and has not yet become a significant performance driver for partners, according to the research.
Cleveland Research raised its revenue projections above consensus estimates. The firm models second quarter 2026 revenue growth of 47.5% year-over-year versus consensus of 45.9%. For full year 2026, it projects revenue of $3.3 billion, representing 47.8% growth, compared to consensus estimates of $3.2 billion.
The research cited Reddit's connection to large language models as a factor driving new advertisers to the platform for both organic and paid marketing efforts. Partners also mentioned Reddit gaining market share from competitors including Snap, Pinterest, and TikTok.