RDDT vs. META: Which Social Media Ad Stock Has an Edge Right Now?
Reddit is benefiting from strong growth in user engagement, including rising daily and weekly active users, ARPU gains and expanding advertiser tools like DPA, Reddit Pixel and CAPI. Reddit's AI-powered features, including Reddit Answers, are key catalysts in enhancing content discovery and personalization. Reddit Answers has more than one million weekly users. Reddit aims to deepen advertiser onboarding and improve campaign outcomes through integrations with Smartly.io and Meta Platforms' campaign import tool.Reddit expects revenues between $410 million and $430 million for the second quarter of 2025, indicating 46-53% year-over-year growth. AI-led product development is improving platform experience and scale. The company hosts a data trove that becomes the foundation of large language model training. Reddit's platform has more than 100,000 active subreddits, with over 500 subreddits that each have at least one million subscribers. Investments in AI have improved new user onboarding and driven engagement with existing users. Internally developed models are powering feed ranking, onboarding, translation and moderation.Reddit's growth appears less stable despite recent strong performances. While the company reported its third straight quarter of more than 60% revenue growth in first-quarter 2025, several concerns limit its prospects. The platform depends heavily on Google search traffic for new users, making it vulnerable to changes in search algorithms that Reddit cannot control. The platform's community-based model, while unique, makes it harder to grow quickly compared to automated content systems Reddit's subscription services and tools for content creators remain underdeveloped, limiting ways to diversify revenue. The company's advertising technology is less advanced than Meta Platforms and Google, which may hurt its ability to keep advertisers and run effective campaigns in the competitive digital advertising market.
Meta Platforms continues to show strong performance across its ecosystem, supported by deep AI integration and a broad user base. Upgrades to its recommendation systems have led to a 7% increase in time spent on Facebook and 6% on Instagram over the past six months. Meta AI now reaches nearly one billion monthly users, underscoring the platform's ability to scale new experiences across products.The advertising business remains the core revenue engine. AI-powered improvements have boosted conversion rates by 5% in Facebook Reels. More advertisers are adopting Meta's creative tools, making campaign development faster and more accessible. WhatsApp's push into business messaging, especially in emerging markets, is expected to open additional revenue streams.The company recently announced features to the Ads Manager that enable businesses to manage their marketing strategy across WhatsApp, Facebook and Instagram. Businesses can now upload their subscriber list and either manually select marketing messages as an additional placement or use Advantage+. META's AI system will then optimize budgets across placements to maximize performance. Ads Manager will help businesses in creating ads in Status once the feature is available. Meta Platforms is planning to introduce Business AI that can make personalized product recommendations and facilitate sales on any business' website. Over a WhatsApp chat, the Business AI can also follow up with customers to answer questions and provide updates. Moreover, Meta Platforms plans to launch calling and voice options for large businesses that use the WhatsApp Business Platform, thereby strengthening the relationship between businesses and customers.
Shares of Reddit have plunged 8.6% year to date and have underperformed the appreciation in Meta Platforms shares which were up 24% over the same period.
Image Source: Zacks Investment Research
Both Meta Platforms and Reddit are overvalued, as suggested by the Value Score of D and F, respectively. In terms of forward 12-month Price/Sales, Meta Platforms shares are trading at 9.06X, lower than Reddit's 12.62X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Reddit's 2025 earnings is pegged at $1.21 per share, unchanged over the past 30days. The figure marks an improvement over 2024's loss of $3.33 per share.
Reddit Inc. price-consensus-chart | Reddit Inc. Quote
The Consensus mark for META's 2025 earnings is pegged at $25.35 per share, up by 3 cents over the past 30 days, indicating a 6.24% increase over 2024's reported figure.
Meta Platforms, Inc. price-consensus-chart | Meta Platforms, Inc. Quote
Meta Platforms offers better growth potential through its diverse business model, proven AI implementation and multiple revenue sources, including advertising improvements and business messaging. The company's financial strength, operational skills and ability to use its large user base for new products provide lasting competitive advantages. While Reddit has unique appeal, its limited money-making ability and execution challenges present significant risks. Currently, Meta Platforms with a Zacks Rank #3 (Hold), has an edge over Reddit, which has a Zacks Rank #4 (Sell). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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