Upvoted Into S&P 500, Is Reddit Getting Ratioed?

Reddit became the second social media company in the S&P 500 yesterday, joining Meta. 

S&P Dow Jones Indices announced on Thursday that Reddit would replace AvalonBay Communities, a real estate investment trust being acquired by fellow S&P member Equity Residential. 

Investors initially upvoted Reddit’s stock ahead of the social platform joining the S&P 500. But sentiment switched not long afterward as concerns mounted about the company and its little alien mascot Snoo’s ability to perform in the big leagues. 

Adding ‘Reddit’ to Every Google Search

Reddit has been the so-called “front page of the internet” since 2005, but it became more than a platform for perusing memes in the past couple of years. As companies tried to make their AI chatbots sound more human, Reddit posts, from users DoorDashing Dunkin’ to their wife’s workplace on r/CasualConversation to those having a ghost hitch a ride with them on r/Paranormal, have become a blueprint for the human experience.

And unlike some other sites, AI’s scraping happened with Reddit’s permission: 

• Reddit got cozy with AI in 2024, striking lucrative deals with both Google and OpenAI to train their AI models on r/creepypasta posts. Those deals padded Reddit’s earnings, which are mainly fueled by ads. The social platform at the end of July reported the eighth straight quarter of revenue rising more than 60%, led by its ad biz. Its “Other revenue” category, which includes data-licensing deals, grew 24%. 
• But now investors are afraid AI will do more harm to Reddit’s bottom line than good. While reporting its second-quarter performance, Reddit called search referrals “choppy.” CEO Steve Huffman pointed to Google’s AI overviews as pulling traffic away from Reddit’s site. The Wall Street Journal reported last month that Reddit could be considering ending its $60 million Google deal.

Reddit Stories or AI Summaries? Reddit has always struggled to keep its content on its site, where it can bring in ad dollars, as users repeat its posts word-for-word on TikTok or upload screenshots of its posts to Instagram. Google’s AI overviews are the latest example of that problem. Blocking AI chatbots, like publications including The New York Times and Reuters have done, could either keep more users on Reddit or just diminish the posts’ visibility and drive people to other sources.