Popular online forum Reddit is joining the S&P 500

Reddit will join the S&P 500 on Tuesday, a major milestone for the online forum.

There’s a spot opening up because two companies in the index, AvalonBay and Equity Residential, are merging to form a new company. Reddit started two decades ago with a $100,000 investment. Now, it’s worth more than $30 billion — one reason it’s eligible to join the index.

“I think it’s important to say that the S&P 500 is not mechanically the 500 largest companies in America,” said Greg Stoller, a master lecturer at Boston University’s Questrom School of Business.

Stoller said there are four major criteria a company needs to meet to qualify for the index. First, it has to be worth more than $22.7 billion.

“The second qualification is it has to be liquid enough… that investors can realistically buy and sell the shares,” he said. “Third is, it has to be established enough.”

That means it has to have been publicly traded for at least a year.

“And the biggest one of the four is it has to be profitable enough,” Stoller said.

Reddit checks all of those boxes.

Eric Zitzewitz, an economics professor at Dartmouth College, said getting selected to join is a pretty big deal for a company.

“A lot of stock investing is happening via index funds,” he said.

And a lot of those funds track the S&P 500.

“So if a stock gets added to that index, they pretty much have to buy the stock in order to track the index,” Zitzewitz said.

That’s why companies tend to get a bump in their stock price when it’s announced they’re joining the index. Robin Greenwood, a finance and banking professor at Harvard Business School, said it’s usually not huge — maybe 5% to 10%.

“(But) multiplying that times the billions of dollars of your stock price, that's real money,” he said.

Beyond that initial bump, he said, economists have tried to quantify the financial benefits of being included in the index.

“The jury's out a little bit on that question,” Greenwood said.

But ultimately, he said joining the S&P 500 is not going to dramatically change a business’ value long-term.