Reddit shares surge 12 per cent on S&P 500 inclusion announcement
Strong second-quarter earnings and index rebalancing requirements drive investor interest as Reddit prepares for major institutional exposure.
Reddit Inc. shares climbed 12.63 per cent to close at $178.09 following confirmation that the company will join the S&P 500 index. The addition, scheduled to take effect on Tuesday, 18 August, was confirmed by S&P Dow Jones Indices in an updated report released on Thursday.
The inclusion of Reddit replaces AvalonBay Communities, which is being acquired by Equity Residential. Companies added to benchmark indices typically experience significant share price movements as funds mirroring the index composition are required to rebalance their portfolios.
The announcement follows robust second-quarter financial results for Reddit, which reported a 61 per cent increase in revenue to $805 million. Net profits more than doubled to $253 million compared to $89 million in the same period last year, marking the company's eighth consecutive quarter of revenue growth.
Ad revenues were the primary driver of this performance, jumping 64 per cent to $762 million, while other revenues rose 24 per cent to $43 million. Chief Finance Officer Drew Vollero stated the company is proud to be added, citing growth, momentum, and consistency as key factors in the decision.
Market sentiment remains mixed among analysts. A moderate buy consensus exists among 23 analysts covering the stock. Phillip Securities issued a bullish buy call with a $230 price target, while JPMorgan and Roth MKM issued hold ratings with targets of $185 and $145, respectively.
Institutional conviction has shown signs of cooling prior to the index addition. Data from Insider Monkey indicates hedge fund holdings fell 46 per cent to $2.86 billion in the first quarter of 2025, with the number of funds holding the stock dropping from 82 to 70.
The broader market context includes rising US stock futures driven by easing inflation expectations. Recent data showed the Producer Price Index rising less than expected, reinforcing positive signals from the Consumer Price Index and reducing expectations for a September interest rate hike.
