Reddit’s stock market ‘Cake Day’ and what it means for major indices | Insights

This article was written by Bloomberg’s Index Multi-Asset Product Team.

When a user creates an account on Reddit, their sign-up date is known in Reddit lingo as their ‘Cake Day’ – a day to commemorate the birth or anniversary of their account. On March 21st, Reddit celebrated a new type of Cake Day: its first day of trading on the New York Stock Exchange.

In Reddit Inc.’s recent initial public offering, the company issued nearly 22 million shares for a price of $34 per share. In its early days of trading post-IPO, Reddit traded around $48 per share, reaching a market capitalization of $7.7 billion. Many have linked the stock’s performance to Reddit’s potential in data licensing, particularly in the generative AI space.

In the weeks following Reddit’s IPO, it’s not far-fetched to imagine a world in which Reddit surges beyond $10 to $12 billion of market capitalization. If Reddit reaches this milestone, it could reach the threshold required to join the top 500 U.S. securities – a move that could allow it to soon qualify for major market indices.

If Reddit had traded at its current price of over $65 for its first five consecutive trading days, it would have been eligible to join the B500 Index through a process called fast-track IPO. In this process, newly-listed securities can be added to indices with a three business day notice if they meet the criteria for fast-track addition set out in Bloomberg’s equity index corporate action methodology. This rule has previously allowed other high-profile listings to bypass the traditional selection process in which companies are evaluated on an index’s selection date, which can sometimes occur months after a company’s initial listing.

The latest example of this in the B500 Index is Kenvue, which joined the index last year. On May 4th, 2023, Johnson & Johnson spinoff Kenvue joined the New York Stock exchange. With an initial valuation of $41.6 billion, Kenvue was solidly within the ranks of other U.S. Large Cap companies. After its first 5 consecutive days of trading, Kenvue met each of the criteria for joining Bloomberg’s U.S. Large Cap Index via the fast-track process and was added on May 16th.

The fast-track IPO mechanism offers a path for companies like Kenvue to be represented in an index in a timely manner. Kenvue was added to the S&P 500 on August 25th, 2023 and to the Russell 1000 on August 24th, 2023. With a more responsive benchmark, managers are better able to manage the addition of large cap companies. If the primary goal of an index is to accurately represent an investable universe, this waiting period can delay the addition of newly listed but significant companies to an index – large cap companies like Kenvue may not be represented until a nearly a full quarter later.

To learn more about the fast-track IPO process, click here. For more information and an overview of Bloomberg’s US Domestic Indices, click here.

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