Want to buy a piece of Reddit? Better think about what the WallStreetBets subreddit could mean for your investment.
This is evident from the social media platform itself.
Three years after being the epicenter of a trading boom that sent meme stocks soaring, Reddit is warning potential investors that a repeating phenomenon could rock its stock price, it says in IPO filings with the Securities and Exchange Commission on Thursday -Papers Stock Exchange Commission.
By law, companies seeking an IPO must provide an overview of the risk factors they believe could affect their shares. But Reddit's nod to the WallStreetBets forum mania in 2021 is clear.
In its publicly filed IPO papers, Reddit noted the “extreme volatility” for companies like GameStop Corp. there.
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and AMC Entertainment Holdings Inc.
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during the meme stock craze.
Reddit said the fluctuations and spikes in these stocks are “related in part to strong and atypical interest from retail investors, expressed on, among other things, financial trading and other social media sites and online forums such as r/wallstreetbets.” of our subreddits.â€
GameStop's stock price shot from about $4 per share in early December 2020 to an all-time intraday high of $483 on January 28, 2021. The stock opened at $13.30 on Friday.
In its IPO filing, Reddit said that given the prominence of its platform, the popularity of WallStreetBets and direct access to shares, “the market price and trading volume of our Class A common stock may vary for reasons unrelated to our underlying business.” could be subject to extreme fluctuations.” or macroeconomic or industry-specific fundamentals.â€
This prospect “could result in you losing all or part of your investment if you are unable to sell your shares at or above the original offering price.”
Reddit wants to trade under the RDDT ticker. The filing did not specify the number of shares being offered or the proposed price. The company said it would offer some shares to certain Reddit users and moderators.
The risk factor call drew cheers and jeers on WallStreetBets, the salty subreddit with 15 million members.
“Look, we did it,” said one Reddit user.
“Keep it short,” wrote another.
Of course, buying a stake in a company going public carries downside risks.
Consider Uber Technologies Inc.
ABOVE
,
which offered its shares at $45 in its initial public offering in May 2019, the largest stock market debut by a U.S.-based company since Facebook in 2012.
Uber's stock price soon slowed before rebounding in late 2020. After another decline and another upward move, the ride-hailing company is now joining the Dow Jones Transportation Average DJT. It opened at $78.50 on Friday.
But is WallStreetBets actually a problem for potential Reddit investors?
“In some ways, naming WallStreetBets as a risk is an exercise in covering all bases,” said James Angel, a professor at Georgetown University’s McDonough School of Business.
“What lawyers do is they do their best to create a parade of horrors of all the possible things that can go wrong,” Angel told MarketWatch. “If they leave something out and something goes wrong, everyone gets sued.”
With Reddit's risk factors, “they're saying in plain language, 'We could be a meme stock, which means our stock could be very volatile,'” Angel said.
While that could be the case, investing is a long game, and there are many other factors to weigh besides the possibility of short-term fluctuations when considering whether to invest in a company like Reddit, Angel said.
Reddit declined to elaborate on its filing because companies are not allowed to publicly comment on their IPOs before they begin trading.
WallStreetBets users “already agree with possible memefication of RDDT, with posts about IPO in.” [WallStreetBets] We see a lot of interest in potentially shorting the stock,” said Thomas Westwater, options strategist at schmackhaftlive, a streaming platform aimed at options traders.
The “Short it” comment on WallStreetBets had received more than 2,000 upvotes as of midday Friday, he noted.
“While some brush aside the potential risk factor, it would contradict the saying that 'those who do not learn history are doomed to repeat it,'” Westwater said.
Reddit's own “memefication” could contribute to short-term price moves in the stock, but Westwater said Reddit's IPO “will have a much higher valuation than where the 'meme' stocks started, and without any options listed at the outset.” “It will be harder to create the same kind of shortage.”
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