Give Reddit credit for its willingness to try the unusual. While the gigantic community messaging service has never shied away from the odd—hang around the It’s Always Sunny in Philadelphia subreddit for a while, and you’ll see for yourself—this is a step in a direction that has never, at least in recent memory, been seen before. Reddit is looking to offer shares from its initial public offering (IPO), which has been delayed at least twice for a variety of reasons, to its most frequent users.
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Yes, Redditors themselves, as they’re known, would have the first crack at a block of shares (whose total size is currently undefined) instead of leaving them only in the hands of “qualified investors.” In fact, 75,000 Redditors would be first up to invest in the company whose product they’ve used so frequently over the years.
But Is This a Good Play?
While this is undoubtedly a unique move, it’s potentially risky. If the IPO turns out to be a winner, and not all of them are, it would be a masterstroke to reward long-standing users with a winning stock buy. But if it goes sour, that could do some damage. Who would return to use the platform that cost them a big chunk of their investment? And considering that Reddit investors have done quite a bit of damage to other stocks via boycotts or the like, it might well ruin Reddit itself.
That’s an extreme case, of course, but certainly, some level of risk exists. Reddit has had troubles with disgruntled Redditors in the past, which includes charging for its application programming interface (API) or selling user-generated content to train artificial intelligence.
Is IPO ETF a Good Investment?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on Renaissance IPO ETF (NYSEARCA:IPO) shares based on 48 Buys and 11 Holds assigned in the past three months, as indicated by the graphic below. After a 31.83% rally in its share price over the past year, the average IPO price target of $42.77 per share implies 15.09% upside potential.
