Social media company Reddit is planning to offer shares in its initial public offering to 75,000 of its largest users when it comes to market next month, the Wall Street Journal reported Wednesday, citing people familiar with the matter.
The move is aimed at building loyalty, but could prove counterproductive if the stock collapses on its debut.
Reddit CEO Steve Huffman said at the Wall Street Journal’s Tech Live conference in 2021 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.
Users will have the opportunity to buy the shares at the issue price – an unusual move that is normally reserved for large institutional investors, the people said. This investor base is considered safer as they generally hold shares for a longer period than retail investors, who should be more likely to sell in case of weakness.
Reddit filed confidentially for an IPO in late 2021 and is expected to make its filings public later this month and seek to list on the New York Stock Exchange in March. The company reached a $10 billion valuation in a fundraising round in August 2021, but valuations have since changed.
Reddit is known for its message boards, called subreddits, that allow users to comment and exchange information on a variety of topics. One of the most famous is WallStreetBets, which gained notoriety early in the pandemic when investors created the meme-stock phenomenon of frenetic trading in stocks of companies like GameStop Corp. GME,
and AMC Entertainment Holdings Inc. AMC,
That forum averages about 70 million users per day.
To be sure, Reddit wouldn’t be the first company to place some of its IPO stock with its users. Stock trading platform Robinhood sold part of its deal to users in 2021. The shares fell more than 8% on their first day of trading and are now trading more than 60% below their IPO price.
Reddit is one of the biggest deals expected this year amid hopes of a revival of the IPO market, which has languished for the past two years.
The hoped-for rebound failed to fully take hold in 2023 due to geopolitical uncertainty, interest rate hikes and bank failures.
Read now: IPO freeze gives way to cautious optimism as traders see signs of thaw
One of the largest recent deals, that of BrightSpring Health Services Inc. BTSG,
which offers home and community services, fell 9% in its debut after pricing $2 below its proposed price range, a sign that investors are still pushing back on valuations.
The Renaissance IPO ETF has gained 0.3% year to date, while the S&P 500 SPX index has gained 4.3%.