Key facts
- Reddit is set to be included in the S&P 500 index on August 18.
- The company has entered into data-licensing agreements with tech firms, including Google and OpenAI, to train AI models.
- Reddit's revenue grew 61% to $805 million in the second quarter, with ad revenue up 64% year-over-year.
- The stock experienced a significant surge following the announcement of its S&P 500 inclusion.
Reddit is set to join the S&P 500 index on August 18, marking a significant milestone for the internet discussion platform. The company's inclusion reflects its recent growth, partly driven by the AI boom, which has led to lucrative data-licensing deals with major tech companies like Google and OpenAI. These agreements allow these firms to use Reddit's vast content for training artificial intelligence models.
In February 2024, Reddit finalized a partnership with Google valued at $60 million annually, granting the search engine access to its data. This move comes as Reddit's revenue has shown strong momentum, soaring 61% to $805 million in the second quarter, with advertising revenue increasing by 64% year-over-year. This marks the eighth consecutive quarter of over 60% annual revenue growth.
The transition from a freewheeling internet forum, often subject to criticism for its chaotic nature, to a publicly traded entity in the S&P 500 has not gone unnoticed by its users. Many Redditors have celebrated the company's newfound status, viewing it as a sign of legitimacy. However, the stock has experienced volatility, with a 25% decline year-to-date, influenced by concerns about the potential dissolution of AI deals and the impact of AI chatbots on site traffic. Reddit's stock surged as much as 17% on Friday following the S&P 500 inclusion news, and has more than tripled since announcing its OpenAI deal in May 2024.
Despite the stock's recent gains, potential risks remain. Reports have surfaced regarding internal discussions about revoking Google's data access upon partnership renewal, and CEO Steve Huffman's comments have hinted at potential volatility in search traffic. Reddit's Chief Financial Officer, Drew Vollero, expressed pride in the company's growth and consistency, highlighting Reddit's unique content as its core asset.