Reddit (RDDT) is officially all grown up. S&P Dow Jones Indices said late Thursday that Reddit will be added to the S&P 500 prior to the start of trading on Aug. 18.
Shares rose more than 12% in pre-market trading.
Reddit enters the benchmark index eyeing one big opportunity ahead in using the AI backdrop to carve out more advertising sales.
People who are growing frustrated with AI slop and useless AI summaries are already gravitating toward Reddit's long, human conversations, the platform's co-founder Steve Huffman told Yahoo Finance in a recent interview (video above).
"Reddit is so naturally commercial: Forty percent of the conversations people are having organically on Reddit are more or less about what to buy," Huffman said. "They don't say what should I buy. They say what should I wear, what should I watch tonight, where should I go, what's the best headphone. And so because the organic content is naturally commercial, putting ads alongside it is also a natural thing to do."
Huffman co-founded Reddit in 2005 with college friend Alexis Ohanian. The strategy appears to be working.
Reddit is fresh off reporting a 61% year-over-year revenue increase to $805 million in the second quarter, spearheaded by a surge in advertising revenue as marketers aggressively leaned into the platform's user communities.
Sales have increased by more than 10% in the past 13 quarters, per Yahoo Finance AlphaSpace analysis.
Earnings per share ripped higher by 178% to $1.25.
On the user front, Reddit's global footprint expanded by 18% year over year to 130.3 million unique daily active users, driven largely by a 28% international surge and a 36% spike in global average revenue per user (ARPU).
Shares of Reddit are down 22% this year, however, as investors question if the growth is sustainable. The S&P 500 is up 13% on the year.
"In our view, Reddit's investments in community and ad monetization should create a durable >30% annual revenue growth business with a path to 50% EBITDA margin," KeyBanc analyst Justin Patterson said in a recent note. "Further, we believe Reddit's data is becoming more valuable to LLMs and model training, creating a potential upside catalyst into 2027. In our view, Reddit is a unique way to participate in AI growth with an asset-light business model."
Brian Sozzi* is Yahoo Finance's Executive Editor, host of the 'Power Players With Brian Sozzi' podcast and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X** @BrianSozzi**,** Instagram**, and** LinkedIn**. Tips on stories? Email brian.sozzi@yahoofinance.com.*
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