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Reddit Announces Plans to Allow Redditors to Buy Its IPO Stock
Reddit has revealed more details about its planned initial public offering (IPO), including offering shares to users.
About the IPO details:
In an S-1 filing with the Securities and Exchange Commission (SEC), Reddit laid out some details about its IPO plans. As part of this, the site notes that it intends to allow Redditors (a nickname for users) to purchase shares at IPO prices.
Specifically, the company says it intends to offer a directed share program in a six-tiered model that first gives select moderators the chance to purchase. Subsequent tiers also include regular users, with priority going to those with higher amounts of Karma (the site’s scoring system that reflects a user’s contributions and upvotes). As CNBC notes, Reddit did not reveal what percentage of its IPO shares will be made available to the community, but it did state that these users would not be subject to a lock-up agreement.
Elsewhere in the filing, a particular Subreddit was referenced as a potential “Risk Factor”: Wall Street Bets. Previously known for playing a role in the 2021 “short squeeze” on stocks, such as GameStop, AMC, and others, Reddit warns investors that it too could be caught up in the “meme stock” craze. In turn, the company warns of volatility that this trend — and the fact that they’re inviting Redditors to purchase the stock — could bring.
What they’re saying:
In the filing, Reddit said of the decision to offer IPO shares to community members, “Our users have a deep sense of ownership over the communities they create on Reddit. This sense of ownership often extends to all of Reddit. We see this in our users’ passion for their communities, their desire for Reddit to be as amazing as possible, and in their disapproval when we let them down.” It continued “We want this sense of ownership to be reflected in real ownership — for our users to be our owners. Becoming a public company makes this possible.”
As for Reddit’s possible meme stock status, the company said, “Given the broad awareness and brand recognition of Reddit, including as a result of the popularity of r/wallstreetbets among retail investors, and the direct access by retail investors to broadly available trading platforms, the market price and trading volume of our Class A common stock could experience extreme volatility for reasons unrelated to our underlying business or macroeconomic or industry fundamentals.”
My thoughts:
It is funny to see Wall Street Bets mentioned in an SEC filing, but I think it’s a fair point for Reddit to bring up. That’s especially true since sentiment towards Reddit has waxed and waned in recent years, which could cause even more volatility if shares are in the hands of retail investors.
As for plans to sell IPO shares to Redditors — I think this is a great idea. Again, it is somewhat humorous to see the concept of Reddit Karma immortalized in official regulatory documents, but using this hierarchy to prioritize users does also make sense. With that, we’ll need to wait for more info on when this buying opportunity will roll out, how much shares will be, and whether Reddit’s IPO will ultimately be successful.
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