Reddit takes an unusual approach to its IPO: shares also for community members

• 75,000 Reddit users should be able to subscribe to shares as part of the IPO
• High reputation and activity as a requirement
• Reddit users are clearly interested in the offer – many critical comments

The online platform Reddit is taking some unusual steps with its IPO. The Reddit share, which has apparently been in preparation since 2021, will not be listed on the US technology exchange NASDAQ, but instead on the New York Stock Exchange (NYSE). In addition, with the recent publication of the stock prospectus, it became known that Reddit plans to allocate shares to selected users as part of the IPO.

Reddit users can receive shares at the issue price – divided into six levels

At the company’s request, the underwriters reserved Class A common shares for sale to eligible Reddit users and moderators at the initial public offering price as part of a private placement program, or “Directed Share Program (DSP),” according to the form submitted to Reddit with the US Securities and Exchange Commission (SEC). However, the stock prospectus does not contain any information about how many shares are intended for sale to users as part of the IPO or how many users a corresponding offer is to be made to. However, the Wall Street Journal reports that up to 75,000 Reddit users will have the chance to buy shares in the IPO.

To qualify for the private placement program, Reddit users must be U.S. residents, at least 18 years old, and have opened their account no later than January 1, 2024. Users must also have high “karma,” according to Business Insider, a measure of how much a user’s posts and actions contribute to their message boards. Reddit moderators, on the other hand, have to be very active to receive a stock offer. “We will invite users and moderators to participate in the Direct Share Program in phases at six priority levels. We will assign each eligible participant a level based on that participant’s contributions to Reddit,” the prospectus states. The first tier consists of “certain users and moderators we have identified who have made meaningful contributions to Reddit community programs.” Level two includes all users who have a karma value of at least 200,000, as well as all moderators who have carried out at least 5,000 moderation activities. These threshold values ​​are gradually reduced in subsequent stages. In order to be classified into the fifth level, users need at least a karma value of 25,000 and moderators need at least 500 actions. Level six then consists of “all other authorized users and moderators”.

The first emails to community members have apparently already been sent. The “New York Magazine” apparently has an email from Reddit in which reference is made to the planned IPO and the recipient is informed that they are entitled to buy shares. “Because you helped make Reddit what it is today, you now have the opportunity to become Reddit owners at the same price as institutional investors,” New York Magazine quoted the letter as saying. However, an invitation to participate in the private placement program does not guarantee that you will actually receive an allocation of shares, Reddit warned in the SEC document. However, there is the option of joining a waiting list if demand exceeds capacity.

Reddit wants to strengthen the sense of belonging with unusual measures – warning of risks

According to “Investing.com”, Reddit wants to use the extraordinary measure to build a stronger bond with community members. This should not only arouse financial interest, but also strengthen the feeling of togetherness and participation. Reddit itself emphasizes in its stock prospectus a sense of ownership that characterizes the community and that should now be reflected in real ownership: “Our users have a deep sense of ownership for the communities they create on Reddit. This feeling of ownership extends often across Reddit. We see this in our users’ passion for their communities, their desire to make Reddit as great as possible, and their disapproval when we let them down. We want that sense of ownership to be real “Reflects ownership – so that our users are our owners. Converting to a public company makes this possible. With this in mind, we are pleased to invite the users and moderators who have contributed to Reddit to join our investors in purchasing shares in our IPO.” . It may also be in keeping with this perceived sense of responsibility for the online forum that the users and moderators who can subscribe to shares as part of the IPO are not subject to a set holding period, unlike professional investors.

At the same time, however, Reddit also warns in its stock prospectus that the participation of its own users could damage the share price. Reddit users’ participation in the offering could result in increased volatility in the market price of the A shares, the SEC filing said. Further, there is a general caution that potential retail and other individual investor interest in Reddit stock may result in increased price volatility that is unrelated to the underlying business, industry fundamentals or macro environment. After all, it was the Reddit community that shook up the market a while ago by helping meme stocks like GameStop and AMC soar, driving short investors out of the market. It is possible that the Reddit share itself could become a new plaything for some Reddit users after the IPO.

Karma strikes back: Many users are skeptical about the stock offer

However, on the online platform Reddit itself, enthusiasm about the private placement program has so far been limited. “They need idiots to create enough demand,” one user commented, while others asked when they could buy puts on the Reddit stock or short it outright. “That stinks,” wrote another user. “Basically, the big Reddit subs are all controlled by a very small handful of ‘power users’ and karma whores. And now the ‘Old Boys Club’ is getting a lot of free stock,” he continued to criticize, but was directly criticized by one corrected by another user. “Not free,” he replied, but otherwise didn’t say anything good about the stock exchange plans. “This exclusive club is offered the chance to buy in the IPO, giving them the privilege of paying out early investors and then potentially losing the money.” Other users were also skeptical about the possible stock market success of Reddit shares. “I wouldn’t worry if you don’t [Reddit-Aktien; Anm. d. Red.] Tobe offered. The shares will likely be significantly cheaper than the IPO price shortly after the IPO,” was one of many similar comments.

According to “Business Insider”, however, one should not give too much attention to the predominantly negative reactions from the community. So you can’t necessarily expect good forward-looking advice from a small number of people posting about a stock, who may be teenagers, it says. In addition, one of the top activities of many very active users is to complain about the social network on which they are currently posting. So it only remains to be seen how successful the Reddit IPO actually is and how the stock will perform afterwards. At the moment it is not yet clear when the IPO will actually take place, how many shares will be placed in total and what valuation Reddit is aiming for. However, it seems as if the online platform has to accept some compromises in its IPO compared to its last financing round – possibly with malicious comments from its users.

Editorial team finanzen.net

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