Redditors will be able to sell shares immediately

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Watching Reddit’s IPO should be interesting, not just because the company is still losing money but also because of the way it plans to enter the public markets with its active user and moderator community. Reddit plans to sell roughly 22 million shares at a price between $31 and $34, according to a recent SEC filing. Reddit’s decision to forgo the customary lock-up agreements that normally prohibit investors from selling their shares for six months following the IPO and allow community members to sell their shares immediately could make the IPO volatile.

According to reports from other sources, Reddit, valued at approximately $6.55 billion, could raise up to $748 million. Still, the business is raising up to $519 million by selling 15 million shares, or a fraction of its 22 million total shares. The company will not profit from the remaining 7 million shares that the selling shareholders will be selling.

With this action, Reddit positions itself to become a meme stock, a term made popular by a group of users on its community r/WallStreetBets, who were responsible for the insane GameStop short squeeze of 2021. Through their collective action of purchasing GameStop stock, the users had taken on the hedge funds that had shorted the company by more than 100%. As the stock started to rise as a result of Redditors purchasing shares, the intention was to pressure the funds and other investors to cover their short positions rather than incur losses. The gambit paid off, with the stock rising more than 600% in a matter of days and trading being suspended several times as a result of its extreme volatility.

By enabling the Reddit community to participate in the IPO, there is once more a chance that Redditors’ collective action will manipulate the stock, maybe to Reddit’s benefit.

On the other hand, considering that Reddit listed r/WallStreetBets as a risk factor in the IPO, things could also go wrong in this regard.

In its S-1 filing, Reddit wrote:.

The market price and trading volume of our Class A common stock may experience extreme volatility for reasons unrelated to our underlying business, macroeconomic conditions, or industry fundamentals. If you are unable to sell your shares at or above the initial offering price, you may lose all or part of your investment due to the widespread awareness and brand recognition of Reddit, which includes the popularity of r/wallstreetbets among retail investors.

The company says that Redditors in its directed share program will have the option to sell at any time in its most recent filing.

According to the document, “Shares purchased through the directed share program will not be subject to the terms of the lock-up agreement or market standoff restrictions.”.

Through this program, 75,000 eligible Reddit users and moderators, as well as certain board members and the friends and family of employees and directors, will be able to purchase eight percent (1,760,000 shares) of Reddit’s Class A common stock. If they are U.S. citizens, redditors who registered their accounts prior to January 1, 2024, may be qualified for the directed share program. S. -based and at least eighteen years of age. Based on their reputation (also known as their karma score on Reddit) or their contributions as moderators, they will be invited to take part in “six phased priority tiers,” the platform claims.

Given that this program is only making a limited quantity of stock available, a waitlist will be provided if demand exceeds supply.

In December, Reddit filed its S-1, which became public in February. This was the company’s first public offering (IPO) and a major tech move this year. It was also the first consumer social stock offering since Pinterest in 2019. Despite its scale—267 million weekly active users engage across the site’s more than 100,000 communities—the company struggles to turn a profit on both a GAAP and adjusted basis.

A new revenue strategy for Reddit was recently announced. It involves licensing its data for $203 million over two to three years, depending on the terms of each deal, to different companies developing AI tools.

Under the ticker “RDDT,” Reddit will make its NYSE debut. “.

At 12:07 p.m. on March 11, 24. m. ET with information on Reddit share sales and the total amount raised.

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