Reddit is joining the S&P 500 after months of speculation. Analysts have these concerns.

By Bill Peters

Shares of the social-media platform jump more than 10% after hours

Reddit will replace AvalonBay Communities in the S&P 500 on Aug. 18.

After past snubs, social-media site Reddit has landed a spot on the S&P 500, sending shares on an after-hours rally Thursday.

S&P Dow Jones Indices, the company that makes decisions on which companies get listed on the benchmark index, said Reddit would replace AvalonBay Communities on the S&P 500 SPX on Tuesday, Aug. 18, before the start of trading. Shares of Reddit (RDDT) jumped 12.6% after hours on Thursday.

S&P Dow Jones Indices noted that Equity Residential (EQR), which is part of the index, is acquiring AvalonBay Communities (AVB), adding that the deal was expected to be completed soon. After that merger, the combined company will change its name to Vivmark Residential and stay on the S&P 500.

Reddit's addition to the S&P 500 gives it more attention from investors, but at a time when the site - with its reams of detailed user conversations on an array of topics - is grappling with the ways artificial intelligence is reshaping the way people seek information on the internet.

Reddit's stock is down 31.2% so far this year, as of Thursday's close. Shares are trading at around $175, off highs of more than $270 reached last year. The company, which went public in 2024, has a market cap of around $29.5 billion.

Since at least last year, there has been speculation that Reddit could join the S&P 500 Index. But last month, Ferguson Enterprises (FERG), a distributor of plumbing and heating supplies, secured a place on the index instead, replacing videogame developer Electronic Arts, which went private this month.

When Reddit reported quarterly results last month, sales and earnings per share topped Wall Street's estimates, helped by its advertising segment. However, executives pointed to "volatile" traffic and "choppy" search referrals.

According to Barron's, concerns have surfaced over the company's ability to drive traffic as artificial intelligence becomes a bigger source of online information.

"Big picture - [Reddit's] core advertising business is solid," Cantor analyst Deepak Mathivanan said in a research note last month. "That said, volatility in user growth due to external factors is likely to temper some excitement on the shares in the near term."

However, Wedbush analysts, in a note last month, said Reddit had faced traffic problems in the past. And they said the company could make AI more intelligent, arguing that it "delivers meaningful value to model training and search overall."

-Bill Peters

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(END) Dow Jones Newswires

08-13-26 2019ET