2 weeks ago
Reddit surges on S&P 500 inclusion, set to replace AvalonBay
Reddit is a website where millions of people share messages, questions, and funny posts every day.
The S&P 500 is a famous list of the biggest companies in America, and Reddit is being added to it.
That is a very big deal because money managers who copy the S&P 500 have to buy shares of every company on the list.
Because so many people wanted Reddit stock, its shares jumped a lot on Friday.
Reddit joins the list on August 18 and takes the spot of AvalonBay, a housing company that is being bought by Equity Residential.
Experts at J.P. Morgan say the funds will need to buy about 16.7 million Reddit shares, far more than the stock usually trades in a day.
Reddit is doing great business too, having grown sales for eight straight quarters and more than doubling its profit in the latest quarter.
When it joins, Reddit will be only the second pure-play social media company in the index, after Meta.
Some experts warn that stocks often slow down a bit after the excitement of joining the index wears off.
Reddit shares jumped more than 11% on Friday (around 15% at the opening bell) after S&P Dow Jones Indices said the platform will join the S&P 500, replacing AvalonBay Communities.
The index change takes effect before markets open on August 18, an off-cycle move triggered by AvalonBay's all-stock merger with Equity Residential into a company to be called Vivmark Residential.
J.P. Morgan estimates S&P 500 index funds will need to buy about 16.7 million Reddit shares, nearly three times the stock's average daily volume of about 5.98 million shares.
Reddit reported its eighth consecutive quarter of revenue growth, with Q2 sales up 61% year-over-year to $804.9 million and net income up 183% to $252.85 million.
Stephens analyst Melissa Roberts notes new S&P 500 additions have historically outperformed the benchmark before inclusion but lagged it by about 2% over the following three months.
- Who
- Reddit, a San Francisco-based social media company, and S&P Dow Jones Indices, which announced the index change.
- What
- Reddit will be added to the S&P 500, replacing AvalonBay Communities, which is being acquired by Equity Residential.
- Where
- The benchmark S&P 500 index on the U.S. stock market (Wall Street).
- When
- Announced on Thursday; effective before markets open on August 18.
- Why
- Index funds tracking the S&P 500 are required to buy Reddit shares, and AvalonBay is being removed due to its merger with Equity Residential.
Key facts
- Index change date
- Before markets open on August 18
- Replaced company
- AvalonBay Communities (AVB)
- J.P. Morgan buy estimate
- 16.7 million Reddit shares, nearly 3x average daily volume of ~5.98 million shares
- Market capitalization
- Around $30 billion
- Q2 revenue
- $804.9 million, up 61% year-over-year
- Q2 net income
- $252.85 million, up 183%
- User growth
- 130.3 million daily active users (up 18%); 514.6 million weekly active users (up 24%)
- AvalonBay-Equity Residential merger
- $69 billion enterprise value; combined firm to be named Vivmark Residential
Sources
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