Shares in Reddit Inc (NYSE:RDDT), the social media platform, surged 12.45% in extended trading on Thursday after S&P Dow Jones Indices announced the business will join the S&P 500. The company will enter the prominent equity index before the US market opens on August 18. The stock replaces Avalonbay Communities Inc (NYSE:AVB), a real estate investment trust currently being acquired by Equity Residential (NYSE:EQR).
Inclusion in the benchmark typically generates significant institutional demand because passive funds must adjust their portfolios to hold the new constituent. The social media company went public on the US stock market in March 2024 and currently has a market capitalisation of about $30.4 billion. Reddit will join Meta Platforms Inc (NASDAQ:META, XETRA:FB2A, SIX:FB) as one of the few social-media-focused companies in the index.
Sector peers such as Pinterest Inc (NYSE:PINS) and Snap Inc (NYSE:SNAP) have not yet achieved the scale required for inclusion in the major index. Questions still remain over whether Reddit can maintain stable user growth as artificial intelligence alters how internet traffic is distributed. The second-quarter results released at the end of July provided positive signals to investors, but the impressive revenue figures did not entirely dispel market concerns.
The company noted that US user growth had slowed and traffic from search engines remained subject to significant volatility. Unstable search referral volumes have also led investors to re-evaluate Reddit's reliance on the Google search ecosystem. In the second quarter, US daily active user growth was just 6%, down from 7% in the previous quarter.
Meanwhile, international user growth reached 28%, though monetisation efficiency for overseas users was noticeably lower than in the US market. As Alphabet Inc (NASDAQ:GOOG)'s Google continues to push forward with Gemini-powered AI search and AI summary features, the market is concerned that users may increasingly seldom click directly on traditional web links. As of the close on August 13, the stock remains down about 31.9% year-to-date, leaving a significant gap from its peak of over $270 last year.
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