Shares of online advertising companies soared on Wednesday, buoyed by robust earnings from Google-parent Alphabet, Reddit, and Snap, signaling strong brand spending as the critical holiday season approaches. The combined market capitalizations of these three firms are expected to increase by approximately $140 billion. In premarket trading, Alphabet (GOOGL) rose by 6%, Reddit (RDDT) surged by 20%, and Snap (SNAP) climbed 10.6%.
These positive earnings also bode well for other ad-dependent companies, including Meta Platforms (META), Amazon (AMZN), and Pinterest (PINS), which saw their shares rise between 1.9% and 2.5%. Gil Luria, head of technology research at D.A. Davidson, noted, "The concurrent strength in results seems to indicate a robust U.S. economy, bolstered by U.S. election spending. This is promising not only for the upcoming holiday season but also for digital advertisers like Meta and Pinterest."
Alphabet’s impressive quarter was partly driven by an AI-fueled surge in its cloud services, alongside benefits from election-related advertising. As U.S. political ad spending is projected to rise by nearly a third in 2024 compared to the last presidential election—with digital media expected to capture about 28% of that—other ad-focused companies are likely to experience similar growth, according to a report from Insider Intelligence earlier this year.
AI Integration
For Snap, the quarter highlighted the effectiveness of improved ad features, which have attracted marketers back to its platform. The company has utilized artificial intelligence to enhance ad targeting for its users. Meanwhile, Reddit celebrated its first quarterly profit, aided by AI-driven content licensing deals and the implementation of machine learning for translating content into various languages to reach new audiences.
Dan Coatsworth, an investment analyst at AJ Bell, remarked, "AI has played a crucial role in improving content relevance and promotional suggestions, thereby enhancing user experience and increasing profit potential for platform operators. This trend appears to be accelerating."
Following the earnings reports, nearly half of the 58 analysts monitoring Alphabet raised their price targets, while most of the 17 covering Reddit also adjusted their forecasts upward. Snap saw at least seven price target increases. Currently, Alphabet trades at approximately 20 times its 12-month forward earnings estimates, compared to Snap's 30.8 times.