Reddit Faces Record Demand Ahead of S&P 500 Debut

Reddit's stock price surged by 12.6% on Friday to $178.09 ahead of its S&P 500 debut, which is set for Tuesday. According to JPMorgan, index fund requirements could total 16.7 million shares, representing a significant shortfall that could total 2.8 times Reddit's typical daily trading volume since its IPO.

This demand would account for approximately 8.1% of Reddit's fully diluted shares, with an estimated value of around $2.97 billion based on Friday's closing price. The addition to the S&P 500 is due to a corporate event, where AvalonBay Communities NYSE:AVB will be replaced by Vivmark Residential after its merger agreement with Equity Residential NYSE:EQR.

Reddit reported robust growth in the second quarter, with revenue increasing by 61% to $805 million and adjusted EBITDA climbing over twofold to $343 million. The company also projected third-quarter revenue between $860 million and $870 million, suggesting a sequential revenue increase of 7.5%. Adjusted EBITDA is expected to range from $385 million to $395 million, indicating a 13.7% growth.

Wall Street analysts have set a broad range for the stock, with an average target price of $232.48 and potential gain of 30.5%. However, records suggest that stocks added to an index often give back part of their gains after being included, with a historical underperformance of around 2% over the next three months.