Reddit plans to sell stock to loyal users in unusual IPO wager

Reddit, which first filed confidentially for an IPO in late 2021, is expected to make its paperwork public this month and list its shares on the New York Stock Exchange in March.
Reddit, which first filed confidentially for an IPO in late 2021, is expected to make its paperwork public this month and list its shares on the New York Stock Exchange in March.

Summary

The social media company intends to offer shares in the offering to 75,000 of its biggest users.

Reddit plans to place a big chunk of its IPO shares in the hands of its users, an unusual move that could build loyalty but also comes with risk.

The company plans to reserve an as-yet-undetermined number of shares for 75,000 of its most prolific so-called redditors when it goes public next month, according to people familiar with the matter. 

The users will have the opportunity to buy Reddit shares at its initial public offering price before the stock starts trading, a privilege normally reserved only for big investors.

Ideally for the company and its underwriters, Reddit shares will rise in their stock-market debut, bestowing big gains on those who buy in at the IPO price. If the stock falls, however, it could anger those members of Reddit’s community—a group that, broadly speaking, hasn’t shied away from boycotts in the past.

Banks generally favor selling the bulk of an IPO to big money managers that tend to hold stocks for a relatively long time. Individual investors are viewed as more fickle and prone to selling at the first sign of weakness.

It is an especially perilous time for the new-issue market. The last two years have been rough, with volume down and the majority of new listings trading below their IPO prices. Last month one of the first big IPOs of the year struggled to find buyers and remains below its listing price.

Reddit, which first filed confidentially for an IPO in late 2021, is expected to make its paperwork public this month and list its shares on the New York Stock Exchange in March. The unprofitable company was valued at $10 billion in a fundraising round in August 2021, but valuations have swung since then.

Founded in 2005, Reddit is known for its message boards called subreddits that focus on a range of topics, plus its “ask me anything" digital town halls with celebrities, politicians and subject-matter experts. 

A forum on Reddit called WallStreetBets launched a frenzy in meme-stock trading three years ago, underscoring the power of the company’s users, which now number about 70 million on the average day.

Robinhood, a stock-trading platform on which many of the meme stocks were traded, sold a chunk of its IPO to its users in 2021. That made for a volatile first day of trading, with the stock falling more than 8%. The stock recovered for a bit but now trades more than 60% below the IPO price.

In October 2021, Reddit CEO Steve Huffman said at The Wall Street Journal’s Tech Live conference that he wanted to make any offering more accessible to individuals.

“I want our users to be shareholders, and I want our shareholders to be users," he said.

Sarah E. Needleman contributed to this article.

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