Reddit, the popular social media platform, has finally filed for its initial public offering (IPO). In its S-1 filing, the company has highlighted the potential risk posed by the activities of the subreddit r/WallStreetBets, known for its involvement in “meme stock” schemes.
Key Takeaway
Reddit’s IPO filing acknowledges the potential impact of r/WallStreetBets on the market price and trading volume of its stock, highlighting the risks associated with the activities of the subreddit.
Reddit’s Concerns about r/WallStreetBets
The subreddit r/WallStreetBets, boasting a community of 15 million retail traders, gained notoriety for orchestrating a short squeeze on GameStop stock in 2021. This move, which resulted in significant financial losses for hedge funds, led to extreme volatility in the stock market. The company expressed in its filing that the widespread popularity of r/WallStreetBets among retail investors and their direct access to trading platforms could lead to extreme fluctuations in the market price and trading volume of Reddit’s Class A common stock.
Impact on Investors and Reddit’s IPO
For potential investors, the involvement of r/WallStreetBets poses a significant risk, as the market price and trading volume of Reddit’s stock could experience extreme volatility, potentially leading to investment losses. Additionally, Reddit’s IPO filing revealed its intention to offer Reddit users and moderators the opportunity to purchase stock through a directed share program, with priority based on their karma, a measure of community contributions on the platform.
Challenges and Profitability Concerns
Despite its significant presence in internet culture, Reddit has struggled to achieve profitability. The company’s filing also raised concerns about its ability to attain or maintain profitability in the future, citing a net loss of $90.8 million in 2023 and a cumulative deficit of $716.6 million.
