Reddit's upcoming initial public offering (IPO) stands out for its unique approach to involving its community directly in the process. By offering some of its most dedicated users, including moderators, the chance to purchase shares, Reddit aims to translate the deep sense of community ownership into actual financial stakes. This initiative, revealed in the company's S-1 filing, marks a departure from the norm where IPOs predominantly cater to institutional investors. Reddit's management expressed their desire for users who have significantly contributed to the platform's growth and culture to have the opportunity to own a part of the company, reflecting their commitment and contributions in a tangible manner.
However, this strategy introduces potential risks for other investors, as outlined in the "Risk Factors" section of Reddit's filing. Specifically, the involvement of Redditors in the IPO is flagged as a factor that could lead to increased market price volatility for Reddit's Class A common stock. Unlike traditional IPO investors who often agree to lock-up periods where they refrain from selling their shares immediately post-IPO, Reddit's user-investors won't be bound by such agreements, potentially contributing to fluctuations in the stock's price. This approach is particularly noteworthy given the Reddit community's history with the meme stock phenomenon, where users drove significant volatility in stocks like GameStop and AMC Entertainment through the WallStreetBets forum. The allocation of shares to users will be based on a tiered system, prioritizing those with higher "karma" scores, reflecting their engagement and contributions to the community.
