Plenty of interest is beginning to build around Reddit’s upcoming initial public offering (IPO). The social media platform has officially put forward its corporate filing for its IPO, leading to outsized interest in what will soon be RDDT stock.
Reddit’s updated S-1 filing suggests the company will look to raise nearly $750 million at the high end of its range. Shares are predicted to be priced between $31 and $34 each. It’s expected RDDT stock will begin trading on March 21, with insiders provided shares through what’s known as a directed share program. The company hopes that it can continue to incentivize its power users (those who contribute most to its platform) via stock, furthering the network’s growth prospects moving forward.
I have to say, this is an intriguing model, and while it’s not new (other companies have tried similar things in the past), it’s one that’s certainly raising eyebrows. Let’s dive into the directed share program and what it means for Reddit users and prospective early investors.
What Reddit’s Directed Share Program Could Mean for RDDT Stock
This upcoming Reddit IPO could be among the biggest offerings of the year and is expected to take the top spot at the time of the offering, at least in terms of tech companies that have sought to go public this year. With a valuation of up to $6.4 billion, Reddit will likely immediately become a social media stock investors consider as part of a well-diversified portfolio. That said, questions about when investors may want to buy this stock (at the IPO or a few days or weeks after) are brewing.
That’s because Reddit’s proposed directed share program, which will compensate certain Reddit users based on specific criteria with shares, will allow insiders to sell these shares immediately upon the IPO. Companies like Reddit can issue the ability for qualifying individuals to buy stock at an IPO, democratizing a process that usually favors institutional investors and bankers involved in the offering itself.
It’s unclear how exactly many users and employees will have access to this program. However, these insiders will be able to sell stock immediately following the IPO. Thus, we could see a pretty volatile opening for this IPO, depending on what initial investors decide to do. Despite remaining unprofitable, Reddit’s community could drive significant demand (or selling pressure), depending on how it views this deal.
Doubts Loom and Who Qualifies
Notably, r/WallStreetBets users have been instrumental in other meme stock surges in the past. However, recent commentary from some users appears to be dissuaded by the executive compensation packages provided for Reddit’s brass (which were released as part of the IPO filings). Combined with other concerns, like profitability, these doubts could lead to some surprise downside out of the gate. Thus, this will certainly be an interesting IPO to watch.
For those who wish to participate in the directed share program or believe they should be eligible for an invite, Reddit has broken down its invitations into three initial groups:
- Group 1: Moderators with 5,000+ mod actions or users with 200,000+ karma.
- Group 2: Moderators with between 1,000-5,000 mod actions and users with 50,000-200,000 karma.
- Group 3: Moderators with 500+ mod actions and users with 25,000+ karma.
Notably, all Redditors with active accounts as of March 1 can pre-register without an invitation, but it’s on a first-come, first-served basis.
On the date of publication, Chris MacDonald 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.
