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Reddit plans to sell shares to loyal users in an unusual IPO bet

Reddit plans to put a large portion of its IPO shares into the hands of its users, an unusual move that could boost loyalty but also comes with risks.

Reddit plans to put a large portion of its IPO shares into the hands of its users, an unusual move that could boost loyalty but also comes with risks.

The company plans to reserve an as-yet-undetermined number of shares for 75,000 of its most prolific so-called Redditors in next month's IPO, according to people familiar with the matter.

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The company plans to reserve an as-yet-undetermined number of shares for 75,000 of its most prolific so-called Redditors in next month's IPO, according to people familiar with the matter.

Users have the opportunity to buy Reddit shares at the initial offering price before the stock begins trading, a privilege usually reserved only for large investors.

Ideally for the company and its underwriters, Reddit shares will rise in their stock market debut, delivering big profits to those who buy in at the IPO price. However, if the stock falls, it could anger members of the Reddit community – a group that, by and large, has not shied away from boycotts in the past.

Banks generally prefer to sell the bulk of an IPO to large asset managers, who tend to hold shares for a relatively long period of time. Individual investors are considered more fickle and tend to sell at the first sign of weakness.

It is a particularly dangerous time for the new issues market. The last two years have been tough, with volumes declining and most new listings trading below their IPO prices. Last month, one of the year's first major IPOs struggled to find buyers and fell short of its list price.

Reddit, which first confidentially filed for an IPO in late 2021, is expected to release its filings this month and list its shares on the New York Stock Exchange in March. The unprofitable company was valued at $10 billion in a fundraising round in August 2021, but valuations have fluctuated since then.

Founded in 2005, Reddit is known for its message boards, called subreddits, that focus on a range of topics, as well as its digital “Ask me anything” town halls with celebrities, politicians and subject matter experts.

A forum on Reddit called WallStreetBets sparked a frenzy in meme stock trading three years ago, underscoring the power of the company's users, which now number about 70 million on an average day.

Robinhood, a stock trading platform that traded many of the meme stocks, sold a portion of its IPO to its users in 2021. That made for a volatile first day of trading, with the stock falling more than 8%. The stock briefly recovered, but is now trading more than 60% below the IPO price.

In October 2021, Reddit CEO Steve Huffman said at the Wall Street Journal's Tech Live conference that he wanted to make every offering more accessible to individuals.

“I want our users to be shareholders, and I want our shareholders to be users,” he said.

Sarah E. Needleman contributed to this article.

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