Digital ad sellers jump as Google, Reddit and Snap earnings indicate sturdy demand

Shares of online ad sellers surged earlier this week as strong earnings from Google-parent Alphabet, Reddit and Snap signaled solid spending from brands ahead of the crucial holiday shopping season.

The three companies were set to add more than $110 billion combined to their market capitalizations, if current gains hold. Shares of Alphabet (GOOGL.O) rose 5.4 per cent, while Reddit (RDDT.N) jumped 37 per cent and Snapchat-parent Snap (SNAP.N) climbed 13.3 per cent.

The results also augur well for other ad-reliant companies such as Facebook-parent Meta Platforms (META.O), Amazon.com (AMZN.O) and Pinterest (PINS.N), which gained 0.3 per cent to 1.3 per cent.

“The concurrent strength in results appears to be an indication of strength in the US economy, as well as a benefit from US election spending,” said Gil Luria, head of technology research at D.A. Davidson.

“They bode well not only for this holiday season, but for other digital advertisers such as Meta and Pinterest.”

Alphabet, whose strong quarter was also powered by an AI-driven surge in its cloud business, said late on Tuesday that it benefited from election-related ads.

Ads-focused peers will likely see similar gains as US political advertising spending is expected to jump by nearly a third in 2024 over the previous US presidential election, with digital media accounting for about 28 per cent of that, a report from Insider Intelligence from earlier this year projected.

AI BOOST

For Snap, the quarter showed that better-performing ad features were bringing back some marketers to its Snapchat app. The company has leaned on artificial intelligence to sharpen its targeting of ads to users.

Reddit, which turned its first quarterly profit, is also benefiting from AI content licensing deals and moves such as using machine learning for translating its content into other languages to tap new users.

“AI has been central in increasing the relevancy of content suggestion and promotions, enhancing the experience for users and also increasing the potential for platform operators to profit. This trend seems to be gathering pace,” said Dan Coatsworth, investment analyst at AJ Bell.

Nearly half of the 58 analysts covering Alphabet raised their price targets while most of the 17 covering Reddit also lifted their views, according to LSEG data.

Snap saw at least seven price target increases.

Alphabet trades at nearly 20 times its 12-month forward earnings estimates, compared with 30.8 times for Snap.