Invest in what you know: Reddit moderator who saw meme-stock craze is buying into platform's IPO

By James Rogers

Longtime Redditor usually only invests for retirement, but she is taking advantage of the chance to get in on social-media platform's IPO - even though it's a 'crapshoot'

In 2008, Heather Lagaso was part of what she describes as an "exodus" of users from social-news website Digg to Reddit, which had been founded three years earlier. Fast-forward 16 years, and she is set to become a shareholder in Reddit's closely watched initial public offering.

"It's a sort of unique situation for me," Lagaso told MarketWatch. "I work for the state of Oregon. I don't really invest outside of my retirement."

Reddit is expected to price on Wednesday and begin trading on Thursday. The stock will trade under the symbol RDDT on the New York Stock Exchange.

Related: Reddit's impending IPO is up to five times oversubscribed, report says

Reddit invited users and moderators who have contributed to the social-media platform to buy shares in its IPO. Users and moderators who created an account on or before Jan. 1, 2024, and were "in good standing" were potentially eligible for the directed-share program, the company said in its S-1 filing.

Lagaso has been a Reddit user for more than 16 years and has extensive experience as a moderator on the platform. She has moderated a host of subreddits, including r/Salem, r/Woodburn, r/8yearclub and r/CemeteryPorn, which has 138,000 members and is devoted to "high-quality images of cemeteries and graves."

The Redditor grabbed the opportunity when she was offered Reddit shares, and she's set to invest just under $800. "It's a crapshoot," she acknowledged, while also citing Reddit's potential to become a meme stock. "I think we all know about the meme stocks, and for that reason alone, I am interested to see how this goes."

Related: Reddit's IPO could be a bellwether for other offerings this year, says Vanderbilt professor

Reddit is home to the WallStreetBets subreddit, which played an important role in the meme-stock frenzy of 2021 that sent the stocks of AMC Entertainment Holdings Inc. (AMC) and GameStop Corp. (GME) skyrocketing. In a what has been described as an "unprecedented" twist in the meme-stock saga, Reddit is sparking meme chatter even before the company even has its IPO.

In its S-1 filing, Reddit cited the popularity of WallStreetBets among retail investors as a risk to its stock price, which it said could experience "extreme volatility" for reasons unrelated to the company's "underlying business or macroeconomic or industry fundamentals." Effectively, this is an acknowledgment that it could become a meme stock.

Lagaso is confident that the users who are the lifeblood of Reddit will retain their strong links to the platform when it becomes a public company. "The community is vast," she said. "I think that many of them are really loyal."

Related: Reddit's IPO could open door 'a little bit more' for other public offerings in 2024

According to its S-1 filing, Reddit has over 100,000 active communities, or subreddits, and in December 2023 it had an average of over 60,000 daily active moderators. The company had 500 million visitors in December 2023, the filing said, and in the last three months of 2023, it had an average of 73.1 million daily active uniques.

However, the IPO could put the social-media platform in a tricky position, according to Jon Keidan, founder and managing partner of venture fund Torch Capital. "They are walking a tightrope, 100%," he told MarketWatch earlier this month, highlighting potential tension between Reddit's loyal user base and the demands it will face as a public company. Reddit is not yet profitable.

"The Reddit fans love Reddit. They are pretty dynamic, they are very protective of their community and they are protective of their platform," Keidan said. But a scenario could arise whereby the public markets force Reddit "to make proper financial and strategic moves" to get to profitability, he said, and that could put the company at odds with its user community.

Related: Why Reddit faces a difficult IPO

Reddit's IPO has been garnering plenty of attention after a hoped-for rebound in the IPO market failed to materialize in 2023.

Earlier this week, Reuters reported that Reddit's IPO is between four and five times oversubscribed.

Reddit declined to comment, citing the quiet period during which companies are not allowed to publicly comment on their IPOs before they start trading.

-James Rogers

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03-19-24 1612ET

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