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- As Reddit prepares to go public, the social-media company issued an unusual warning to investors.
- Redditors set off the mania that caused stock prices to go wild for GameStop and other companies.
- Reddit flagged the same thing could happen around its big IPO.
GameStop, AMC, and other companies saw huge swings in their stock prices starting in 2021, thanks to chatter on social-media platform Reddit.
As the company gears up for its much-anticipated initial public offering next month, Reddit is publicly cautioning investors that meme stock mania — often fanned on Reddit's own "r/wallstreetbets" forum — could cause volatility in its own stock once it starts trading.
The warning came Thursday in the company's newly-public S-1, a document filed with the Securities and Exchange Commission that gives lots of details about a company planning to go public. In an S-1, a company also offers investors a heads-up about what could hurt the business, from specific problems (Reddit failing to increase its key metric, Daily Active Uniques) to issues that could affect any company (natural disasters).
In lawyerly language, Reddit wrote that individual ("retail") investors may home in on the company's stock. That could cause big price swings — up or down.
Reddit S-1 screenshot
Reddit is offering its most frequent users a chance to buy into the IPO alongside institutional investors. The S-1 deemed this purchase program a risk factor, too, because it's an unusual approach (though not totally unique — Robinhood did it, too) that could lead to more stock volatility.
Pension funds, asset managers, and other investors who agree to buy chunks of the IPO are often in it for the long term. They have relationships with the company's executives and get to ask them questions ahead of the IPO in hotel ballrooms across the country.
Reddit users, meanwhile, gather on WallStreetBets (mentioned five times in the S-1) and other subreddits, where many posters are bearish about the company's upcoming IPO.