Reddit to lift ~$748M in IPO, however could turn into a ‘meme’ inventory as Redditors can promote shares instantly

Reddit’s IPO needs to be attention-grabbing to observe — and never simply because the enterprise remains unprofitable, but in addition due to how the corporate has chosen to usher in its group of lively customers and moderators into its public markets debut. In a new SEC filing, Reddit says it’s planning to promote round 22 million shares, priced between $31 to $34, probably elevating round $748 million on the excessive finish of that vary. However the IPO may very well be unstable on condition that Reddit will enable its group members to promote their shares instantly, as an alternative of being topic to the standard lock-up agreements that usually stop traders from promoting shares for six months after the IPO.

The transfer sets up Reddit to become a meme stock — a time period coined in reference to the wild GameStop short squeeze of 2021, which was pushed by a gaggle of Reddit customers on its group r/WallStreetBets. The customers had taken on the hedge funds that had shorted GameStop’s inventory by over 100% by working collectively to purchase the inventory. The objective was to push the funds and different traders to cowl their shorts as an alternative of taking losses because the inventory started rallying because of Redditors’ shopping for of shares. The gambit labored because the inventory jumped over 600% inside days, with buying and selling halted various instances resulting from its volatility.

By permitting the Reddit group to purchase into the IPO, there’s once more potential for the inventory to be manipulated — this time, presumably in Reddit’s favor — by Redditors’ collective motion.

Nonetheless, issues may additionally go poorly for Reddit on this entrance, on condition that the corporate listed r/WallStreetBets as a risk factor in the IPO.

Wrote Reddit in its S-1 submitting:

“Given the broad consciousness and model recognition of Reddit, together with because of the recognition of r/wallstreetbets amongst retail traders, and the direct entry by retail traders to broadly obtainable buying and selling platforms, the market value and buying and selling quantity of our Class A standard inventory may expertise excessive volatility for causes unrelated to our underlying enterprise or macroeconomic or trade fundamentals, which may trigger you to lose all or a part of your funding if you’re unable to promote your shares at or above the preliminary providing value.

In its new submitting, the corporate signifies that the Redditors in its directed share program will be capable of promote at any time.

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

8% ( 1,760,000 shares) of Reddit’s Class A standard inventory will likely be supplied by means of this program to 75,000 eligible Reddit customers and moderators, sure board members, and family and friends of workers and administrators. Redditors who created an account earlier than Jan. 1, 2024, are probably eligible for the directed share program, offered they’re U.S.-based and 18 years previous or older. They’ll be invited to take part in “six phased priority tiers,” Reddit says, based mostly on their fame (or in Reddit lingo, their karma rating), or their contributions as moderators.

As a result of solely a set quantity of inventory is being made obtainable by means of this program, if demand outweighs capability, a waitlist will likely be supplied.

Reddit first filed its S-1 in February, signaling its intention to go public and making it the primary important tech IPO of the 12 months and the primary client social IPO since Pinterest in 2019. Nonetheless, the corporate struggles to show a revenue on each a GAAP and adjusted foundation, regardless of its scale which sees the location attracting 267 million weekly lively customers participating throughout its over 100,000 communities.

Extra not too long ago, Reddit introduced a brand new income technique involving the licensing of its data to various entities constructing AI instruments for $203 million over two to three-year durations, relying on the person offers’ phrases.

Reddit will debut on the NYSE underneath the ticker image “RDDT.”