Reddit will enter the S&P 500 before the opening of U.S. trading on Tuesday, August 18, S&P Dow Jones Indices announced, marking a major milestone for the online discussion platform two years after its stock-market debut. Reddit will replace apartment owner AvalonBay Communities in the benchmark, and its shares climbed 12.6 percent during Friday trading after the change became public, according to the Associated Press.
The addition matters because mutual funds and exchange-traded funds that replicate the S&P 500 must adjust their portfolios to include Reddit. Trillions of dollars are either invested in products tracking the index or benchmarked against it, AP reported. Inclusion does not alter Reddit's operations, but the required rebalancing can increase demand for its shares and broaden its exposure among institutional and retirement investors.
Reddit's latest results help explain why the company qualified. Its July 30 earnings release showed second-quarter revenue of $805 million, up 61 percent from a year earlier, including advertising revenue of $762 million. Net income rose to $253 million from $89 million, while the net margin reached 31.4 percent. Daily active unique visitors increased 18 percent to 130.3 million, and weekly active unique visitors rose 24 percent to 514.6 million.
The company said the quarter was its eighth consecutive period with revenue growth above 60 percent. Chief Financial Officer Drew Vollero described the index admission as recognition of Reddit's growth, momentum and consistency, while saying management would remain focused on products and profitable expansion. Reddit says its communities contain more than 26 billion posts and comments, a body of material that supports advertising, search and data-licensing opportunities.
The change is an off-cycle adjustment caused by consolidation elsewhere in the index. Equity Residential is acquiring AvalonBay in a transaction expected to close after remaining conditions are met. S&P Dow Jones Indices said the combined housing company, to be renamed Vivmark Residential, will stay in the S&P 500, leaving Reddit to take the departing listing's place rather than waiting for a regular quarterly reshuffle.
Index-tracking managers are expected to complete their purchases before Reddit formally joins on Tuesday, although the initial share-price jump does not guarantee further gains. Investors will next assess whether operating growth supports the higher profile. Reddit has forecast third-quarter revenue of $860 million to $870 million and adjusted earnings before interest, taxes, depreciation and amortization of $385 million to $395 million, projections the company cautioned are estimates rather than guarantees.
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