Are you ready for what could be the year’s biggest trading debut? Later this week Reddit will begin trading under the symbol RDDT on the New York Stock Exchange. Reddit is seeking to raise up to $748 million, with the company and its existing shareholders offering 22 million shares priced between $31 and $34 each. 8% of the RDDT shares offered are being reserved for platform users.
Unsurprisingly, the Reddit IPO is generating significant buzz as investors prepare for what could be a historic first trading day.
There’s no question that the newly minted RDDT stock will see significant momentum as it goes public. But investors still have plenty of questions regarding the long- and short-term prospects of the company as it enters a new chapter.
RDDT Stock: What to Expect from the Reddit IPO
For all the excitement surrounding the Reddit IPO, some investors will likely be cautious. They have reason to be.
Earlier this month, speculation rose that some members of the Reddit user community were planning to target RDDT stock for a massive short squeeze. For the same crowd responsible for the GameStop (NYSE:GME) squeeze of 2021, that strategy would mark a significant deviation from its typical modus operandi. However, the Wall Street Journal reports that many Reddit users are excited about the opportunity to own shares in the company they love.
Regardless of the potential short squeeze, RDDT stock will start trading tomorrow and so far, circumstances look promising for a positive first day. That said, if the IPO momentum proves unsustainable, shares will likely be quick to plunge.
Proceed with Caution
One expert has some mixed feelings about the Reddit IPO and its uncertain future. Alpha Cubed Investments CEO Todd Walsh told InvestorPlace that the Reddit IPO will benefit the broader market by motivating more investors to get involved.
However, he also has his fair share of concerns about Reddit’s plan to reserve 8% of IPO shares for users.
“This democratizing move has some possible short-term risks associated with it… These regular retail investors have no lock-up on their shares and are free to sell them almost immediately after the IPO. It remains to be seen who will flip what equates to 8% the IPO and if it will have an adverse effect on the price action that first and second day of trading.”
It’s impossible to predict if the Reddit shareholders who buy into the IPO will be so quick to sell.
However, it is a valid concern, especially as it could send RDDT stock into the red quickly. As Walsh adds, “it might make sense to stand back and watch to see where and how the dust settles.”
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
