Reddit is set to be added to the S&P 500 index. What does this mean for investors?

Shares of the social media platform Reddit soared 11% in after-hours trading following the close of the regular trading session on August 13. The rally was triggered by news that Reddit would be added to the S&P 500, a major U.S. stock index.

Reddit, which has a market capitalization of $29.5 billion, will be added to the S&P 500 index effective August 18, according to the index provider, S&P Dow Jones Indices. The platform will replace AvalonBay Communities in the index, as AvalonBay is currently undergoing an acquisition. The acquirer—Equity Residential—is also part of the S&P 500, and after the deal closes, the combined company will retain its place in the index under the new name Vivmark Residential.

Reddit will become the second social media company in the S&P 500 index, according to CNBC. The first such company, in 2013, was Meta, which owns Facebook and Instagram. Twitter was also part of the S&P 500 before it was acquired by Elon Musk in 2022.

Companies often see their stock prices rise after being included in major stock indices. This is because managers of funds that track these indices are required to buy shares in order to align with changes in the indices’ composition.

This year, Reddit’s stock has lost more than 30% of its value. In late July, Reddit reported its second-quarter results, marking its eighth consecutive quarter of revenue growth of more than 60%. However, following the release of the earnings report, the company’s stock plummeted: investors were alarmed by a warning about the volatility of search traffic, on which Reddit largely relies to attract new users. Reddit CEO Steve Huffman attributed this volatility to Google’s increasing use of detailed answers generated by its AI, Gemini, in search results, which is causing traffic to publishers’ websites and online platforms to decline.

This article was AI-translated and verified by a human editor