In a bold move, Reddit plans to reserve a portion of its IPO shares for its most active users, aiming to strengthen loyalty but potentially exposing itself to unique risks.
This strategy involves offering 75,000 of its top contributors the chance to purchase IPO shares at the offering price, a privilege typically reserved for institutional investors.
Matt Levine from Bloomberg weighed in about the news and offered multiple ways to look at it.
- Community Loyalty vs. Market Risk: Reddit's decision to involve its user base in the IPO is unprecedented, seeking to align the company's success with its community. However, if the stock doesn't perform well post-IPO, it could risk discontent within Reddit's vocal community known for its past boycotts.
- The Traditional IPO Dynamics: Conventional wisdom favors allocating IPO shares to institutional investors which are more likely to hold them long-term, fostering stock stability. Allowing individual Redditors to buy at the institutional price may disrupt the typical IPO pop dynamics, impacting demand and supply dynamics.
- Meme Stock Corporate Finance View: As meme stocks redefine corporate finance, some companies leverage retail investor communities for unconventional support. Reddit embraces this trend by incorporating its own community into the IPO process, potentially establishing a unique funding source.
- Balancing Act for Reddit: While this move symbolically includes the community in Reddit's success, it remains to be seen how it will navigate the dual challenge of satisfying long-term investors and meme stock enthusiasts. The company positions itself as an outlier in a corporate landscape increasingly shaped by retail investor sentiments.
