Reddit to join S&P 500 — what it takes to become a benchmark stock

Reddit, the online community sometimes likened to the American equivalent of DC Inside, will join the S&P 500 on Tuesday — roughly two years and five months after the company listed on the stock market in March 2024. Despite recent assessments that growth in its US user base has slowed, Reddit has rapidly built out its advertising business and secured a place among America's most prominent companies.

Reddit has continued to grow its advertising business even as concerns mount over slowing user growth. Second-quarter sales announced July 30 were up 61 percent from a year earlier, yet daily active users in the United States were essentially flat quarter-on-quarter. Ad revenue climbed quickly even without a significant rise in the user count.

"The advertising monetization engine remains solid, but US daily active users were essentially flat quarter-on-quarter," Malik Ahmed Khan, a senior equity analyst at Morningstar, wrote in a July 31 report. He projected that Reddit's medium-term growth would come less from rapidly adding new users and more from showing existing users more ads and delivering those ads with greater precision based on their interests.

Reddit's advertising edge stems from the way its platform organizes users around specific interests. Rather than gathering everyone in a single feed, Reddit runs countless individual boards — covering gaming, technology, stocks, virtual assets and more — where users post and comment within the communities they choose. Each individual board is called a subreddit.

Interest-based subreddits are well suited for selling targeted advertising. Users interested in stocks congregate in stock-related subreddits; gamers gather in gaming ones. Because a user's activity on a given subreddit signals their interests fairly clearly, advertisers can direct their messages accordingly. The structure allows Reddit to grow ad revenue from its existing user base even without a large increase in overall users.

Subreddits where investors gather have in fact moved markets. Stock-related subreddits are the clearest example. WallStreetBets (r/wallstreetbets), where retail investors share stock picks and investment ideas, was the epicenter of the 2021 GameStop episode, when analysis suggesting the stock was heavily shorted spread rapidly through the community. The collective buying that originated on the subreddit drove the share price sharply higher and triggered a short squeeze — forcing short sellers to buy back shares to limit their losses. The GameStop episode, in which online buzz and coordinated retail buying sent a share price soaring, became the defining origin of what is now called the "meme stock" phenomenon.

Reddit takes another step up with its addition to the S&P 500 on Tuesday, about two years and five months after it listed on the New York Stock Exchange in March 2024. The S&P 500 covers roughly 80 percent of the US equity market by market capitalization, and assets that track the index or use it as a performance benchmark total around $20 trillion. A community where users once posted in interest-based boards has now become a destination for the global capital that follows America's benchmark index.

South Korea has its own precedent of a DC Inside-style platform attempting a stock market debut. DC Inside pursued a backdoor listing in 2006 by acquiring Kosdaq-listed IC Corporation, and then-CEO Kim Yu-sik announced plans the following year to list on the Kosdaq market — though the company never completed an actual listing.