Reddit shares jumped 11% to $175.12 after hours Thursday after S&P Dow Jones Indices announced the social media company will join the S&P 500 on Aug 18, replacing AvalonBay Communities. The inclusion makes Reddit the second pureplay social media company in the benchmark after Meta, and index-tracking funds will be required to buy shares to match the new composition.
Reddit shares jumped 11% to $175.12 after hours Thursday as the social media company was selected to join the S&P 500 on Aug 18.
"In an increasingly automated web, the value of real human perspective has never been higher," Steve Huffman, founder and chief executive at Reddit, said in the company's Q2 earnings release, tying commercial momentum to demand for authentic content.
S&P Dow Jones Indices said Reddit will replace AvalonBay Communities, which is merging with Equity Residential. Reddit becomes the second pureplay social media company in the benchmark after Meta, while Pinterest and Snap remain smaller by market cap. Twitter was in the S&P 500 until Elon Musk acquired it in 2022. The stock closed Thursday at $158.12, up 3.04 percent, before the after-hours surge. Reddit's Q2 revenue rose 61 percent to $805 million, with net income climbing 183 percent to $253 million and free cash flow more than doubling to $261 million. Daily active uniques reached 130.3 million, up 18 percent year over year.
Index-tracking funds will be required to buy Reddit shares to match the new S&P 500 composition, a dynamic that typically supports stock prices in the weeks following inclusion announcements. The move caps a volatile year for Reddit, whose shares remain down about 31 percent year to date despite the after-hours gain, and trade at 36.79 times trailing earnings. Wall Street's average price target of $218.32 implies 38.1 percent upside from Thursday's close, with 14 buy ratings and nine holds among 23 analysts. The target range is unusually wide: Needham's Laura Martin carries a $300 target while Wells Fargo's Alec Brondolo lists $142, reflecting divergent views on Reddit's growth durability.
Reddit repurchased 1.5 million shares during Q2 at an average price of $157.57, spending $235 million, equal to 90 percent of quarterly free cash flow. Fully diluted shares reached 207.0 million, up 0.2 percent from a year earlier, meaning the buyback offset dilution without producing net share reduction. Management's preliminary Q3 guidance calls for $865 million in revenue and $390 million in adjusted EBITDA at the midpoint, implying a margin of about 45.1 percent, up from 42.6 percent in Q2.
Advertising supplied 94.7 percent of Reddit's revenue in Q2, with ad revenue up 64 percent to $762 million. International revenue grew 84 percent, 28 percentage points faster than U.S. revenue, though it represented only 20.7 percent of the total. The concentration in advertising and the international monetization gap remain key risks for investors as the stock enters the benchmark. Search-distribution changes affecting logged-out traffic add another layer of uncertainty to the growth outlook.
The S&P 500 rose 0.65 percent to 7,798.99 on Thursday, while the Nasdaq Composite gained 0.81 percent to 26,803.03. Sun Communities will join the S&P MidCap 400 on Aug 20, replacing Webster Financial.
This article is for informational purposes only and does not constitute investment advice.
