Reddit IPO could usher in the next big meme stock, users speculate

Image Credits: TechCrunch

Jeremiah Johnson says he has “an embarrassing amount” of Reddit karma. So, as a longtime moderator of subreddits like r/economics, he was part of a select group of power users who were granted first dibs to buy stock in Reddit’s IPO as the company prepares to go public.

“You would never see Instagram doing something like this,” Johnson told TechCrunch. “But on Reddit, so much of the content is driven by Redditors and unpaid moderators. If any site was going to do it, they would be the one.”

It’s not normal for social media companies to give users the same privilege as institutional investors, but Reddit has set aside shares in its IPO to sell to 75,000 devoted community members. Potential investors are given priority based on their amount of karma, which is a metric Reddit uses to measure a user’s contribution to the site. Some people rack up karma after many years of dedicated posting; others can have one post go viral and become rich in karma, which has been pretty useless until now.

Reddit just sent my reddit account a DM asking me to buy stock in their IPO
The meme-est of the meme stocks has arrived pic.twitter.com/lXdM6Xl210
— Jeremiah Johnson 🌐 (@JeremiahDJohns) February 22, 2024

When deciding whether to buy into Reddit’s IPO, users aren’t just weighing the normal investment considerations, like whether Reddit can eventually turn a profit. They’re also wondering if Reddit could be the next meme stock, which could prove lucrative or disastrous.

Communities on Reddit like r/WallStreetBets have left a lasting impact on the stock market, to the point that Reddit formally listed the community as a risk factor in its S-1 filing. With over 15 million members, r/WallStreetBets coordinated a short squeeze on GameStop stock in 2021, a rebellious move that cost hedge funds billions of dollars. Retail traders have also manipulated the prices of low-performing stocks like AMC and Bed Bath & Beyond, dubbing them as “meme stocks.”

Gillian Tahajian, a 24-year-old marketing analyst, thinks that getting in early on a meme stock could be a boon.

“I see [Reddit] as a GameStop stock,” she told TechCrunch. “I think there’s too large of a loyal base that will buy and never sell.”

Tahajian only joined Reddit last month, but now she scrolls the platform nightly to catch up on reality TV gossip — and once she’s up to date on “Love Is Blind” cast drama, she peruses personal finance subreddits. Though she wasn’t invited to invest early, she plans to buy stock in Reddit once it officially goes public.

It’s not just the meme potential that draws her in, though. Tahajian wants to invest in Reddit because she sees its potential as a search engine. It’s becoming common for people to tack on “Reddit” to the end of their Google searches, since Google has become overrun with low-quality results.

“I want to invest in a search engine anyways, because I think it’s a good investment to have,” she said. “Google is overpriced, and Pinterest is failing me.”

Redditors are famously committed, but the company’s relationship with its most devoted users has been strained in the last year. Reddit alienated many of its communities, known as subreddits, with sweeping API changes, making access to API so expensive that some beloved third-party apps had to shut down. In protest of the changes, more than 8,000 subreddits went dark, making parts of the site virtually unusable.

As Reddit goes public, Johnson sees Reddit’s offer for users to invest early as an olive branch.

“Reddit is really dependent on power users who moderate the site, and because they’ve given those power users actual power, power users did for a day or two literally make the site unusable,” Johnson said. “Reddit is just structurally more dependent on their power users than any other social media site, and I think that tells you why they’re doing this, and why no other social media site would.”

Johnson said he plans to take Reddit up on its offer to invest early, but he’s motivated by the ability to chronicle the experience for his newsletter, rather than for the potential returns.

Max Spero, a startup founder in his twenties, plans to buy Reddit stock post-IPO because he’s a fan of the platform, which he’s been using for 11 years. One of his favorite Reddit communities is r/breadit, a subreddit devoted to bread-making, but he’s also an avid Magic: The Gathering player who spends time in r/magictcg.

“I think Reddit is a really great website — despite the negative-on-average community, it’s one of the few places on the internet where community opinion is so clearly organized, and thoughtful discussion happens,” Spero told TechCrunch. “With that being said, I’m not sure how much larger Reddit can grow.”

Reddit has to gain a lot of ground to become profitable, but the company said in its IPO that it still has potential to make more money on ads. Reddit is also licensing data to Google, which will pay $60 million per year to use its content to train large language models. Though the platform’s global daily active users (DAUs) increased by 27% last quarter alone, it’s still surprisingly small with 73.1 million DAUs. That’s less than half as many as X (formerly Twitter), for comparison.

Amit Kukreja, a stock market YouTuber who uses Reddit, doesn’t have such high hopes for Reddit’s IPO.

“Inviting people to be investors is fine, but once I found out that they were listing r/WallStreetBets as a risk, I thought that was a ‘f— you’ to the user,” he told TechCrunch. “What would’ve been really cool is if they gave users free shares — Sam Altman or one of the main VCs could’ve taken out even 0.2% of their shares [for users].”

As far as stocks go, Reddit could be the biggest meme yet. For people like Kukreja, who doesn’t plan to invest in the IPO, the threat of volatile stock shenanigans is a deterrent. But Johnson sees buying Reddit stock as a “rational prediction of irrationality.”

“Regardless of whether or not this technically makes sense, if this is a thing that’s going to happen, you might as well get in,” he said. “This might just be the next meme stock.”