Reddit stock surges on S&P 500 inclusion, but Google search referral woes remain

Reddit shares climbed nearly 13% in extended trading on Friday after S&P Dow Jones Indices announced that the social media platform will join the S&P 500, marking a significant milestone for the company less than two years after its public listing.

The company will enter the benchmark index on Aug. 18, replacing AvalonBay Communities.

According to S&P Dow Jones Indices, the change follows Equity Residential's acquisition of AvalonBay Communities.

Once the transaction closes, the combined company will be renamed Vivmark Residential and will remain a constituent of the S&P 500.

The announcement sparked a sharp rally in Reddit shares as investors anticipated increased demand from passive funds and exchange-traded funds that track the benchmark.

S&P 500 inclusion boosts investor interest

Companies added to the S&P 500 often see their shares rise because index funds that replicate the benchmark must purchase the stock to reflect the revised composition.

For Reddit, the inclusion represents another milestone in its evolution from an online discussion platform into one of the largest publicly traded social media companies.

The company, which hosts millions of user-generated conversations spanning topics from technology and finance to sports and entertainment, becomes only the second pure-play social media company in the S&P 500.

Meta is the only other dedicated social media platform included in the benchmark.

While joining the index is expected to broaden Reddit's shareholder base and increase institutional ownership, the company continues to face broader questions about how artificial intelligence is changing internet search and online engagement.

AI search changes remain a key challenge

Despite Friday's rally, Reddit shares have struggled this year.

Before the after-hours jump, the stock was down about 35% in 2026 and remained more than 40% below the record highs above $270 reached last year.

Last month, Reddit exceeded Wall Street expectations on both revenue and earnings for Q2, and issued stronger-than-expected guidance, but the stock fell 11% after management flagged continued volatility in search-driven traffic.

The company reported earnings per share of $1.25 on revenue of $805 million, beating analyst expectations of earnings per share of $0.97 on revenue of $731 million, according to Fiscal.ai.

However, investors focused on management's comments regarding search referrals from Google.

While Reddit's user base has continued to grow, investors have raised concerns about the company's ability to monetize that traffic as referrals from Google Search decline.

CEO Steve Huffman acknowledged that referral traffic had become less predictable during the quarter.

"Search referrals were choppy in the quarter, and traffic was more volatile later in the quarter," Huffman wrote in the shareholder letter.

"But the bigger picture is unchanged," he wrote. "The commercial business is strong, our revenue growth is differentiated, and we have much to be encouraged by on the product side."

Huffman also argued that Reddit's vast collection of authentic conversations gives it an advantage in an AI-driven internet.

"As AI makes information more abundant, the challenge is no longer finding content; it's finding context, personal opinion, and first-hand accounts. Everything online feels flat, polished, generated, or sponsored, so consumers are overwhelmed and increasingly skeptical," he said.

Analysts remain constructive despite traffic concerns

Analysts broadly welcomed Reddit's financial performance but said uncertainty surrounding Google search referrals continues to weigh on investor sentiment.

The rollout of Google's AI Overviews has altered how users discover information online, reducing referral traffic to many publishers and internet platforms.

Piper Sandler lowered its price target on Reddit to $195 from $215 while maintaining an Overweight rating.

The brokerage said Reddit comfortably exceeded financial expectations, but softer US daily active user growth and management's cautious comments regarding Google weighed on sentiment.

JPMorgan also reduced its price target to $185 from $200 while maintaining a Neutral rating.

The bank said traffic headwinds linked to Google's expanding AI Overviews continue to pressure daily active user growth and are likely to remain an important issue as Reddit renegotiates its data licensing agreement with Google.

The Wall Street Journal reported last month that Reddit is threatening to “block” Google from scraping its platform for AI model training as the two negotiate a renewal of their existing data-licensing deal.

Cantor analyst Deepak Mathivanan maintained a positive long-term view despite the near-term uncertainty.

"Big picture - [Reddit's] core advertising business is solid," he said in a research note last month.

"That said, volatility in user growth due to external factors is likely to temper some excitement on the shares in the near term."

Wedbush analysts also struck an optimistic tone, noting that Reddit has experienced traffic disruptions before and arguing that its vast repository of user-generated discussions remains valuable in the AI era.

The firm said Reddit's content can make AI systems more intelligent because it "delivers meaningful value to model training and search overall."