Prolific Redditors are to be given preferential access to Reddit shares in the company’s initial public offering (IPO), according to a new report.
The plan would see an as-yet-unknown proportion of the shares set aside for the 75,000 most active Reddit users …
IPOs
Reddit has for some time been gearing up to go public, which would allow anyone to buy shares in the company.
In theory, with an open IPO, everyone has an equal opportunity to buy shares at the initial price set. In practice, however, large institutional investors have a significant advantage – and sometimes even have allocations specifically set aside for them. That can help ensure all the shares are sold, but can also put control of the company into the hands of a relatively small number of major investors.
Companies sometimes give priority to small investors, especially loyal customers, as that may lead to the board of directors being given greater freedom to run the company in the way they see fit.
Preferential access to Reddit shares
The Wall Street Journal reports that Reddit plans to give preferential access to its most active users.
Reddit plans to place a big chunk of its IPO shares in the hands of its users, an unusual move that could build loyalty but also comes with risk.
The company plans to reserve an as-yet-undetermined number of shares for 75,000 of its most prolific so-called redditors when it goes public next month, according to people familiar with the matter. The users will have the opportunity to buy shares [ahead of others in the IPO].
To be clear, they will still pay the same IPO prices as anyone else, but will have the chance to purchase a guaranteed allocation of shares before they go on sale to the public. How many shares each Redditor would be able to buy depends on the total number of shares set aside for them, and how many of the 75,000 take advantage of the opportunity.
Preferential access is usually a valuable benefit, as in most cases the share price will rise after the IPO. As with any investment, however, this is not guaranteed: There have been cases of the share price falling soon after launch. Facebook was an example, with an IPO price of $38 per share, and the value dropping to a low of $17.55 just three months later.
May be an attempt to appease Redditors
The chance to make some money from the IPO may be an attempt to appease Redditors, who have been generally unimpressed with the company’s attempts to maximize its market value.
Most notoriously, Reddit started charging large fees for use of its API, which led to the demise of the hugely popular third-party app Apollo. That led to wide-scale protests, which the company had to forcibly shut down.
More recently, Reddit announced a controversial deal to sell access to user-generated content to an unnamed AI company to help it train a large language model.
Photo by Jason Briscoe on Unsplash
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