As Reddit finally files to go public, the company wrote in its S-1 filing that “meme stock” schemes on r/WallStreetBets could pose a risk to investors.
The subreddit r/WallStreetBets, a community of retail traders with 15 million members, describes itself as being “like 4chan found a Bloomberg Terminal.” It’s most well known for coordinating a short squeeze on GameStop stock in 2021, a rebellious move that cost hedge funds billions of dollars. The stock was so volatile, jumping more than 600% within days, that trading was halted multiple times. Retail traders tried to replicate the GameStop saga by investing in other heavily shorted stocks like AMC and Bed, Bath & Beyond, solidifying this phenomenon of trading “meme stocks,” to mixed results.
In its S-1 filing, the company wrote: “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.”
For Redditors who treat retail investing like a form of internet trolling, Reddit’s IPO could be the ultimate meme. The company also wrote in its IPO filing that it will invite Reddit users and moderators to buy stock in its directed share program. This is a rare move that would let community members buy stock at the same price as institutional investors upon IPO. Participants will be granted priority based on their karma, which is a way of measuring community contributions on Reddit.
But yet another risk factor for investors is that Reddit “may not be able to achieve or maintain profitability in the future,” it writes in the S-1. Despite its prominence in internet culture, Reddit has failed to turn a profit. In 2023, Reddit incurred a net loss of $90.8 million, adding to the company’s cumulative deficit of $716.6 million.