Business

Reddit Takes Unconventional Approach with IPO, Allowing Moderators to Access Shares Before Public Offering

Reddit, in its recently filed IPO on Thursday, has chosen a nontraditional route by offering a portion of its shares to its loyal users, particularly site moderators, before making them available to the general public. This unique strategy aims to deepen user engagement and foster a sense of ownership among those who contribute significantly to the platform.

While companies typically reserve some shares for retail investors, the majority initially go to institutional and wealthy individual investors. Reddit’s move seeks to align its dedicated user base with the long-term success of the company.

According to Kyle Stanford, an analyst at PitchBook, this approach is unusual but could yield goodwill and loyalty from the community. However, history has shown mixed results for such strategies. The IPO democratization attempt by investing app Robinhood in 2021, which made a larger portion of its shares available to individual investors, backfired as the stock price dropped more than 8% on the first day of trading.

Reddit’s IPO filing also mentioned that the company is aware of the risks associated with this unconventional approach. If the stock price drops post-IPO, individual investors might react with panic selling, potentially causing volatility. Institutional investors are generally perceived to have a higher tolerance for early complications, mitigating such volatility.

Despite the potential risks, Reddit aims to connect more deeply with its user base and encourage a sense of ownership. The platform has played a significant role in discussions about stocks, as seen with the GameStop phenomenon in 2021. The number of shares made available to users is expected to be a small portion of the total.

The filing comes amid Reddit’s announcement of a partnership with Google to enhance the discovery and access of Reddit communities through Google products like Search. Reddit’s IPO is anticipated to offer unique insights into the dynamics of community-driven platforms going public.

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