Reddit Inc. (RDDT) shares took a beating on Thursday, dropping more than 10% as fresh industry checks pointed to cooling enthusiasm from the advertising community. While the digital ad market looks healthy for the giants, Reddit appears to be getting left behind.
RBC Capital's latest conversations with small and mid-sized ad agencies painted a less rosy picture for the social platform. The feedback was notably softer than what agencies reported about bigger players like Google and Meta. Some smaller brands are apparently choosing to build their presence on Reddit organically rather than paying for ads, which isn't exactly what you want to hear if you're an ad-supported business.
The analyst acknowledged that Reddit still has upside potential, but cautioned that expectations have gotten pretty high while competition from larger platforms intensifies. Even as the broader ad market improves, Reddit isn't capturing the same momentum as its heavyweight competitors.
Looking Ahead: AI and Data Deals Could Change the Story
Not everyone is bearish, though. Wells Fargo analyst Ken Gawrelski actually raised his price target on Reddit to $207 from $186, maintaining an Equal Weight rating. He pointed to consistent execution and a supportive market environment that could deliver a strong fourth quarter.
Gawrelski highlighted 2026 as particularly important for Reddit, with improvements in AI-powered search and upcoming data-licensing renewals expected to drive growth. Still, Reddit's value score sits at just 4.91, suggesting the stock trades at a premium relative to its fundamentals.