Reddit Plans to Turn its Meme-Stock Powers on Itself

r/Goldrush! 

Social media company Reddit plans to share the (opportunity for) wealth in its expected IPO this spring, with sources telling The Wall Street Journal that the company intends to reserve some to-be-determined amount of shares so that 75,000 of its most loyal users can buy its stock before it goes public.

For the Fans

This isn’t exactly the traditional IPO scenario, which usually sees most new shares go to large asset managers that provide valuable price stability by holding the stock longer and incrementally selling it off to the public. 

But it’s also not the first time it’s happened: most notably, in 2021, stock-trading platform Robinhood, the meme-stock yin to Reddit’s yang sold a large piece of its IPO to individual users. Unfortunately, going off the standard playbook resulted in the stock falling more than 8% on its first day of trading, which goes against IPO Rule No. 1: Do whatever you can to make sure your stock only goes up on its first day.

It’s not a stretch to imagine a similar scenario taking place at Reddit:

• Reddit’s online community can be both mercurial and powerful. One of its forums, WallStreetBets, essentially began the meme-stock phenomenon three years ago, anointing “winners” like AMC and Bed Bath & Beyond, and helping drive their stocks above where normal investing metrics would value them.
• Reddit also is getting into business with a user base that has a mind of its own. Last summer, several Reddit communities “went dark” to protest the company’s plan to charge third-party developers to access its data. How are they going to react if you sell them a stock that loses money right out of the gate?

IPO Desert: Reddit is stepping up to the plate in what has been a barren environment for IPOs. New offerings began to fade in 2022 as interest rates began climbing, and several high-profile IPOs at the end of 2023 disappointed and are still trading below their opening prices. Even if Reddit shares bust out early, there may be too much meme-stock baggage to convince most investors that the IPO market has recovered for everyone else.