As Reddit prepares to go public, the company has stated in its S-1 filing that there is a potential risk for investors due to the “meme stock” frenzy on r/WallStreetBets.
The subreddit r/WallStreetBets, consisting of over 15 million retail traders, describes itself as a combination of 4chan and Bloomberg Terminal.
It gained notoriety for orchestrating a short squeeze on GameStop’s stock in 2021, causing significant losses for hedge funds. The stock’s unpredictability led to trading being halted multiple times, with retail traders attempting to replicate the success by investing in other heavily shorted stocks like AMC and Bed, Bath & Beyond. This phenomenon of trading “meme stocks” had mixed results.
In its S-1 filing, Reddit stated: “Due to the widespread recognition and popularity of Reddit, particularly r/wallstreetbets among retail investors, and direct access to trading platforms, our Class A common stock’s market price and trading volume may experience extreme fluctuations unrelated to our business or market fundamentals. Such volatility can lead to a loss or partial loss of investment if shares cannot be sold above the initial offering price.”
For Redditors who see retail investing as a form of online trolling, Reddit’s IPO could be the ultimate meme. As mentioned in its IPO filing, Reddit will offer its users and moderators the opportunity to purchase stock through its directed share program, allowing them to buy at the same price as institutional investors during the IPO. Participants will be prioritized based on their karma, a metric used to measure community contributions on Reddit.
However, the company reminds potential investors that there is a possibility it may not achieve or maintain profitability in the future, as stated in its S-1 filing. Despite its significant presence in internet culture, Reddit has yet to turn a profit. In 2023, the company recorded a net loss of $90.8 million, contributing to its cumulative deficit of $716.6 million.
