Reddit Stock Soared on the News of Its Inclusion in the S&P 500. Here Are 3 Things Investors Need to Know About the Social Media Stock in 2026.

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.

Image source: Getty Images.

1. It keeps posting blowout growth rates

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).

2. Most of its revenue comes from 1 activity, by far

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.

The worry here is that the ad market is eternally fickle. Advertisers are always seeking to get the best bang for their buck, and there's no guarantee today's hot site will continue to be high-temperature for them. That goes double for the online world and social media, where change is constant and it's tough to stay on top.

Reddit has a unique character in the social media world, as it's essentially a massive, sprawling user discussion forum. This uniqueness, combined with the monster user base, keeps it on the burner for advertisers. However, numerous distinctive social media sites have, for one reason or another, fallen out of favor in recent history. If that were to happen to Reddit, the company would have precious little non-ad revenue to mitigate it.

3. It's benefiting from AI, but not in the ways you might think

Speaking of revenue streams, a thin but extremely high-margin one for Reddit with notable potential is connected to artificial intelligence (AI).

While the company uses AI to support its site's functionality and operations, it also earns revenue from AI developers. It mainly does this by selling real-time access to both its data stream and its historical databases so clients can train their models. Customers for this business include AI heavyweights Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) with its Google Gemini, and ChatGPT developer OpenAI.

The contribution of such arrangements is relatively modest; lately, AI licensing revenue has come in at something like $35 million to $40 million per quarter. But there are many developers on the scene, and with such heavy competition, every company needs an edge -- and more than a few have the resources to pay for it on the regular. With its mountain of content, Reddit could create additional products, services, or tiers to aid AI developers, thereby boosting this take.

One of a kind

There is no social media company like Reddit, whether trading on the stock market or operating as a private business. As an enterprise, it has its challenges, such as the one-dimensional revenue structure and vulnerability to changes in Google's current algorithm (which frequently surfaces Reddit pages in search results). Monetization of users can also be tough, as many Reddit visitors don't log in; online advertising more easily targets users who have provided at least a few data points.

Yet it's a smartly managed company with a straightforward and compelling business model. And now it's a part of a nearly unavoidable stock index. I'd say all this makes it well worth considering for any investor to own.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Reddit. The Motley Fool recommends AvalonBay Communities. The Motley Fool has a disclosure policy.