Reddit knows its 'meme stock' communities like r/wallstreetbets are a threat to its share price (2024)

Reddit—an online network where users independently establish and grow communities based on topics or interests—debuted on the New York Stock Exchange this week initially priced at $34 a share.

By close of trading on Thursday shares had popped 48% to$50.44, valuing the firm at more than $9 billion.

But earlier in the year the business confirmed a portion of its shares were being made available to some of its most loyal users before the general public.

In an S-1 form filed in February, the business added this decision could lead to stock volatility.

The filing even named one of its own communities—a subreddit called r/wallstreetbets—as a risk to the IPO given the forum’s “strong and atypical retail investor interest” in so-called ‘meme stocks’ like GameStop and AMC which experienced massive fluctuations.

But in an interview with CNBC yesterday, Huffman insisted he welcomed conversation among users, whether positive or negative.

“First of all, I love wallstreetbets,” Huffman said. “I’m a user, I’ve seen their comments over the last couple of weeks so I just send them my regards. And that’s Reddit, Reddit is people, Reddit is a fun and special but sometimes crazy place.

“I wouldn’t expect anything less from our community.”

Do Reddit users want to short Reddit’s stock?

Investors on the site offered varied takes on how they wanted to play Reddit’s IPO.

One post read: ‘Reasons to Short the Reddit IPO & Make Big $$$$’ while others counter: ‘Unpopular opinion: I am bullish on Reddit IPO & stock.’

Huffman is right to take the opinions of his community seriously: in the past Reddit investors have proved a powerful force.

In 2021 hedge funds began betting against the American video game and electronics merchandiser GameStop, but a community of retail investors decided to fight back—pumping its share price to the point U.S. Treasury Secretary Janet Yellen called a meeting of key financial regulatorsto discuss the volatility.

Huffman—who was recently forced to defend his $193 million salary package while the site’s moderators go unpaid—doubled down on his praise for users when asked if he was disappointed in their reaction.

“I think they’ve helped us get here,” Huffman said. “Reddit is nothing without our users and communities. I think that’s the beautiful thing about Reddit is they tell it like it is.

“But you have to remember, they’re doing that on Reddit. It’s a platform they love, it’s their home on the internet. It’s such a privilege for me and the team to get to work on Reddit, but they really are Reddit.”

Despite flagging the decision to offer Reddit users first refusal on the IPO as a risk, Huffman added he doesn’t believe it’s a “controversial” decision to offer those who helped build the platform the chance to benefit from its listing.

“The best investors of Reddit are people who use Reddit,” he said. “I want our investors to be users and I’d love our users to be investors. We’re all building this together.”

Reddit’s profitability questions

When the platform—which is free to use—first began looking at an IPO, questions were raised about how valuable the company actually is given the fact in its 20-year history, it’s never turned a profit.

While the site claims to have more than 73 million daily active users and more than 16 billion posts as of December 2023, profitability remains an “important milestone” Huffman believes he’s getting “closer and closer” to achieving.

Concerns have also been raised about how Reddit plans to compete with other social media giants for advertising—which reportedly makes up 95% of its revenue—when it operated at a loss of $90.8 million in 2023.

The site’s IPO filings lifted the lid on how the company intends to change those fortunes around.

That includes launching services so that Redditors can generate revenue for themselves, as well as leveraging its data for search, AI training, and research.

Its S-1 filing reads: “As the world becomes increasingly data-driven, we offer solutions that are human- and experience-focused. We expect our data advantage and intellectual property to continue to be a key element in the training of future LLMs.”