This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.
Reddit’s upcoming IPO might end up as one of the most acrimonious public listing events in recent memory, threatened not only by the hordes of salty traders on the WallStreetBets forum but also by a confluence of risk events in the form of a meeting of the Federal Reserve’s FOMC and the expiration of options on the market’s fear gauge – the VIX contract.
❖ Reddit disclosed the financial details of its initial public offering.
The social-media company said Monday it plans to issue 22 million shares of its class A common stock at a price of $31 to $34 a share.
— *Walter Bloomberg (@DeItaone) March 11, 2024
For the benefit of those who might not be aware, Reddit aims to raise around $748 million by issuing 22 million shares at between $31 and $34 per share, as per a recent filing with the SEC. The company reported revenue of $804 million in 2023, which constituted an increase of around 20 percent relative to the preceding year. The social media platform also managed to narrow down its annual net loss to $90.8 million in 2023 from $158.6 million in 2022.
Reddit’s IPO Faces a Number of Headwinds
Reddit, in their IPO, lists wallstreetbets as a risk factor in their registration statement pic.twitter.com/Fr0bph0MpH
— unusual_whales (@unusual_whales) March 10, 2024
This brings us to the crux of the matter. One of the biggest idiosyncratic risks that Reddit’s IPO faces comes from the brand recognition around its r/wallstreetbets subreddit, which had played a critical role in the meme stock phenomenon of 2021 and can influence a cohort of traders to react in a manner that might induce “significant volatility.” In fact, Reddit took pains to specifically cite this risk in its filings with the SEC:
“Given the broad awareness and brand recognition of Reddit, including as a result of the popularity of r/wallstreetbets among retail investors, and the direct access by retail investors to broadly available trading platforms, the market price and trading volume of our Class A common stock could experience extreme volatility for reasons unrelated to our underlying business or macroeconomic or industry fundamentals, which could cause you to lose all or part of your investment if you are unable to sell your shares at or above the initial offering price.”
Do note that Reddit has reserved 1.76 million shares for qualifying users and moderators of its subreddits, who can purchase these shares and then sell them without any intervening lock-up period once the company goes public.
Seems bizarre they timed the Reddit IPO for March 20, the same day of the FOMC meeting and VIXpiration. Usually volatility hits after this date.
— Financelot (@FinanceLancelot) March 11, 2024
Of course, the timing of Reddit’s IPO also poses risks. The company plans to go public on the 20th of March, 2024, which coincides with the Federal Reserve’s FOMC meeting, where the world’s apex monetary regulator typically decides on its interest rate policy, heralding significant market volatility in the process.
As if this were not enough, options on the VIX index are also set to expire on that date. As a refresher, the VIX index aims to capture the expected volatility of the S&P 500 index in the next 30 days. VIXperation events, as they are known colloquially, can result in elevated market volatility, which can negatively affect the performance of Reddit shares on the day of their public flotation.