A growing digital ad market is benefiting giants like Meta and smaller players like Reddit
Jaque Silva | Nurphoto | Getty Images
The digital advertising market is doing so well that even Reddit is getting a cut of the spoils.
Reddit on Wednesday reported fourth-quarter revenue of $428 million, which was up 71% from the previous year and represents the fastest growth rate for any quarter since 2022. Although Reddit’s shares tumbled on weaker-than-expected user numbers, the company’s growing sales indicate a particularly healthy digital ad market, said Jeremy Goldman, a senior director at Emarketer.
Investors typically look to the financial performance of tech giants like Meta, Alphabet and Amazon for a view of the ad market’s overall health, Goldman said. That Reddit’s sales grew significantly alongside the bigger players shows that advertisers feel optimistic enough to “diversify to a platform that’s more nascent, like Reddit, and say ‘We’re willing to throw some dollars at this thing that don’t really understand,'” Goldman said.
Media and advertising executives told CNBC in December that they were optimistic about the market and said that ad spending increased in the fourth quarter. That sentiment seemed to be reflected by online ad tech companies’ latest quarterly earnings reports, said Gil Luria, head of tech research at investment banking firm D.A. Davidson. He added that “animal spirits are high” following the U.S. presidential election.
For its fourth quarter results, Meta said sales were $48.39 billion, up 21% from the prior year. Microsoft said its fiscal second-quarter search and news advertising revenue soared 21% year over year, although it doesn’t provide specific sales numbers. Amazon said its online advertising business grew 18% year-over-year to $17.29 billion in the fourth-quarter earnings, and for its fourth-quarter results, Alphabet said its Google advertising sales grew 11% year over year to $72.46 billion while YouTube’s ad revenue rose 14% to $10.47 billion.
“Advertisers feel like consumers are susceptible to advertising and are investing in that,” Luria said.
Luria noted that while Google is the dominant online advertising business, it’s losing some market share as its core search engine is increasingly challenged by other companies investing in artificial intelligence and related services like ChatGPT.
“They are the biggest digital advertising platform by quite a bit of margin, but a lot of that is based on search, and their search franchise is continuously being eroded,” Luria said. “It’s being eroded by Amazon, being eroded by Meta, being eroded by the AI players.”
Fortunately for Alphabet, YouTube is still booming, Luria said.
YouTube is “becoming such an important media destination that the momentum there is greater than what you would just see from the advertising growth,” said Luria. He noted that some creators have migrated to YouTube amid the TikTok ban.
The uncertainty over TikTok’s future in the U.S. has yet to impact advertisers who are still running campaigns on the ByteDance-owned platform, said Kate Scott-Dawkins, the global president of business intelligence of media investment firm GroupM.
If TikTok eventually does get banned in the U.S., Scott-Dawkins said she expects Meta and Alphabet would inherit much of those ad dollars but noted Snap, Pinterest and others could also pick up scraps.
Snap and Pinterest also reported their fourth quarter results last week. Pinterest said its sales jumped 18% year over year to $1.15 billion while Snap reported $1.56 billion in revenue for the period, marking a 14% increase from the previous year.
But not every digital advertising player had good results for the quarter.
Despite ad tech company The Trade Desk on Wednesday reporting a 22% year over year increase in fourth-quarter sales to $741 million, that figure came in below Wall Street estimates, which sent shares tanking. CEO Jeff Green attributed the miss to “a series of small execution missteps” during an analyst call.
Although companies are pumping money into digital ad platforms, there’s a chance that high inflation, tariffs and weaker economies outside of the U.S. put pressure on the ad market, experts said.
High tariffs and new trade policies could result in Chinese-linked retailers like Temu and Shien slowing down their massive digital advertising campaigns with giants like Meta and Alphabet, Luria said. But even if those Chinese-linked retailers curb spending, it’s likely other advertisers take their place, Luria said.
It’s possible that AI startups like OpenAI, Anthropic and others could eventually become major ad spenders, Scott-Dawkins said. It’d be similar to how older tech companies like Airbnb and TikTok once grew their users via Facebook and Google. OpenAI debuted a Super Bowl commercial last week, which could be an indicator of more ad spending to come, she said.
Watch: I’d buy Amazon over Meta, says Hightower’s Stephanie Link
Technology
Cognition to buy AI startup Windsurf days after Google poached CEO in $2.4 billion licensing deal
In this photo illustration, a man seen holding a smartphone with the logo of US artificial intelligence company Cognition AI Inc. in front of website.
Timon Schneider | SOPA Images | Sipa USA | AP
Artificial intelligence startup Cognition announced it’s acquiring Windsurf, the AI coding company that lost its CEO and several other senior employees to Google just days earlier.
Cognition said on Monday that it will purchase Windsurf’s intellectual property, product, trademark, brand and talent, but didn’t disclose terms of the deal. It’s the latest development in an AI talent war, as companies like Meta, Google and OpenAI fiercely compete for top engineers and researchers.
OpenAI had been in talks to acquire Windsurf for about $3 billion in April, but the deal fell apart, and Google said on Friday that it hired Windsurf’s co-founder and CEO Varun Mohan. Google is paying $2.4 billion in licensing fees and for compensation, as CNBC previously reported.
“Every new employee of Cognition will be treated the same way as existing employees: with transparency, fairness, and deep respect for their abilities and value,” Cognition CEO Scott Wu wrote in a memo to employees on Monday. “After today, our efforts will be as a united and aligned team. There’s only one boat and we’re all in it together.”
Cognition didn’t immediately respond to CNBC’s request for comment. Windsurf directed CNBC to Cognition.
Cognition is best known for its AI coding agent named Devin, which is designed to help engineers build software faster. As of March, the startup had raised hundreds of millions of dollars at a valuation of close to $4 billion, according to a report from Bloomberg.
Both companies are backed by Peter Thiel’s Founders Fund. Other investors in Windsurf include Greenoaks, Kleiner Perkins and General Catalyst.
“I’m overwhelmed with excitement and optimism, but most of all, gratitude,” Jeff Wang, the interim CEO of Windsurf, wrote in a post on X on Monday. “Trying times reveal character, and I couldn’t be prouder of how every single person at Windsurf showed up these last three days for each other and for our users.”
Wu said that the acquisition ensures all Windsurf employees are “treated with respect and well taken care of in this transaction.” All employees will participate financially in the deal, have vesting cliffs waived for their work to date and receive fully accelerated vesting for their, according to the memo.
“There’s never been a more exciting time to build,” Wu wrote.
WATCH: Google snatches Windsurf CEO after OpenAI deal dissolves
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