We don’t yet know the exact cost of Reddit shares when they go on sale, but the company has indicated that the initial public offering (IPO) price will be between $31 and $34 per share.
Selected Redditors will get priority access ahead of the IPO, and unlike most preferential access deals, they will be free to sell their shares immediately if they wish to …
The Reddit IPO
The long-expected Reddit IPO became official last month, following two controversial decisions clearly intended to maximize revenue in order to attract investors.
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 a then-unnamed AI company, later revealed to be Google.
Reddit shares
An updated Securities and Exchange Commission (SEC) filing reveals that the shares will be priced somewhere in the range $31 to $34.
The company plans to sell about 22 million shares, which CNBC notes would generate something close to $750M, and value the company as a whole at around $6.5B.
Approximately 1.76M shares have been set aside for a Directed Share Program. This reserves the shares for Reddit moderators and Redditors with at least 25k in karma, who will be able to buy them ahead of the IPO date.
Usually, such preferential access is reserved for major investors, and there is generally a lock-in period during which the shares cannot be sold. This is intended to stabilise the share price for at least the first few months.
However, in this case, the filing says that there will be no lock-in period, meaning that Redditors can sell their shares as soon as they like – even on the day of the IPO.
It’s very often the case that IPOs are over-subscribed, meaning investors want to buy more shares than are available. They will then buy those shares on the stock exchange once trading opens, and early investors would then be able to make an immediate profit.
There’s no way to be sure that will happen in this case, but it’s certainly a good option to have – even if some Redditors are unimpressed by the offer.
But the investment may be risky
Any share purchase is a gamble, given that stock prices can fall as well as rise.
One particular risk here is the subreddit r/WallStreetBets. Members caused chaos when they started investing heavily in GameStop in order to drive up the share price. This was done to profit from professional investors who had shorted the company and were then forced to buy stock at the inflated price to make good their position.
Here the fear is the opposite: that members may short the stock in order to drive the price down below the IPO value.
Photo by Anne Nygård on Unsplash
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