On Friday, Reddit's (NYSE:RDDT) shares made it to the major league. They were tapped to join the benchmark S&P 500 index, replacing current component stock AvalonBay Communities (NYSE:AVB). The switch will take place before the start of trading on Tuesday, Aug. 18.
Reddit's stock understandably popped (by over 12%) on the news, not least because the company will become an instant candidate for inclusion in the portfolios of scores of index funds. As the company prepares to take its turn in the spotlight, here are three crucial factors investors should keep in mind about its business. This Rare Signal Is Flashing Again.
In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » Despite its age (its site went live in 2005), Reddit continues to grow its already considerable audience and its daunting mountain of user-generated content.
That makes it more attractive and valuable to advertisers, of course. Combined with a relatively low-cost business model, this has resulted in impressive gains in both revenue and profitability over the years. In its most recently reported quarter, the company's top line expanded by an envy-inducing 61% year over year to $805 million.
Better, it nearly tripled its net income to $253 million from $89 million in the year-ago quarter. Over the longer term, annual revenue quadrupled from the pre-IPO days to the present, rising from $485 million in 2021 to over $2.2 billion last year. Across that stretch of time, the company managed to lift itself dramatically out of the red on the bottom line with its first annual net profit in 2025 (of $530 million).
One area of some concern, however, is that, despite the revenue flow, it's coming almost entirely from one source -- advertising. The aforementioned quarter was typical for Reddit, with its ad sales contributing $762 million to the top line. That was almost 95% of the total.
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