While it’s not clear from the perspective just how many of those 1.76 million shares will end up in the hands of Reddit users, the number is likely large enough for those users to exert meaningful pressure on Reddit’s share price. The main concern is that a surge of demand for shares that aren’t locked up could create a sudden run-up in the share price, followed by an equally sharp decline once the initial excitement wears off and short-sellers—investors who effectively place bets that a stock will decline—begin to gather.
That’s pretty much what happened with Robinhood Markets, which operates a simple-to-use and low cost trading platform aimed at novice investors that also offered IPO shares to its users. The company’s stock opened at $38 on its first day of trading in July 2021, shot up to $85 five days later, then plunged back to roughly $40 after just six weeks. Robinhood closed Monday at $16.86.
“Mishandling this process could result in [Reddit] alienating their most ardent supporters, potentially turning them into critics,” warned Deiya Pernas, co-founder of Pernas Research.
But, Don Montanaro, president of the trading platform Firstrade, argues that Reddit may not have had much choice but to go this route.
“They’ve been running a business where their clients, their users, are their product,” he said. “It’s a case of, ‘What else could we do? This is who we are, how could we not offer this to these people?’ ”
Can I get in on this offering?
If you don’t already have a Reddit account, you’re probably out of luck. The offering is only available to users who had established accounts as of January 1, 2024.
Beyond that, shares will be distributed to Redditors and moderators via a formula that accounts for their measurable contributions to the discussion boards. Redditors with high “karma” scores—a measure of their contributions to the community, such as posts that other Redditors find useful, amusing or insightful—will be grouped into six priority tiers for access to the stock offering.
Moderators who have taken significant numbers of “moderator actions” will likewise be sorted into those tiers. Such actions can include anything from designing a new discussion group—a.k.a. a “subreddit” in the jargon of the site—to removing spam or duplicate posts, to enforcing subreddit rules. Moderators will also be rated on membership trends in their subreddits.
