Wall Street debut nears, but Reddit power users are hesitant to participate in IPO.

• Some Reddit users are being invited to participate in the company's upcoming IPO, similar to Airbnb and Rivian.
• Reddit moderators have decided not to accept the offer, stating ongoing conflicts with management and worries about the company's operations.
• Sarah Gilbert, a moderator of the r/AskHistorians subreddit, stated that while it doesn't seem like Reddit is giving back, it might be asking for more.

Since 2012, Sarah Gilbert has been a regular user of Reddit, spending a significant amount of time on the platform. Over the past three years, she has played a key role in moderating the r/AskHistorians subreddit, which boasts 2 million members and was the focus of her Ph.D. dissertation.

When the topic of Reddit's upcoming IPO arises, Gilbert's enthusiasm decreases. The 19-year-old social media company reserved 8% of its shares for specific users, moderators, company insiders, and their friends and family members, similar to what Twitter did when it went public as a way to reward influential users or early customers.

Reddit's upcoming initial public offering (IPO) marks the first major tech offering of the year, following a major reckoning in the industry that saw tumbling valuations, reduced investment, and a shift towards profit over growth. The two venture-backed tech IPOs of 2023 failed to pop, indicating that getting in at the IPO price no longer guarantees a profitable investment.

Reddit moderators, like Gilbert, are not investing due to more than just market conditions. Reddit has a history of conflict with moderators and its most devoted users, known as Redditors. After a user uprising last year over a policy change that required third-party developers to pay more for access to the company's API, Reddit CEO Steve Huffman referred to moderators as "landed gentry."

Gilbert, a research manager at Cornell University's Citizens and Technology Lab, stated that the conflict has "significantly diminished the goodwill and energy" among those who had been dedicating the most time and effort to building communities on the site. As a result, it is challenging for her to see the value in investing money in owning a portion of the company and taking a risk on its future.

"Gilbert said, 'It's like, OK, you've invested your time, emotional well-being, and put yourself at risk, now invest your money into this platform too. However, it doesn't really feel like Reddit is giving back, but rather asking for even more.'"

Reddit, a site with 60,000 daily active moderators hosting forums on topics from the mainstream to the extremely obscure, plans to sell shares at $31 to $34 a piece in its IPO, potentially valuing the company at around $6.5 billion, and trade under ticker symbol "RDDT." At the tech market peak in 2021, Reddit was valued by private investors at $10 billion, according to PitchBook.

Reddit's Directed Share Program (DSP) is designed for US-based users with high site-wide reputations, measured in Karma points, or for moderators, as a way to recognize significant contributions to Reddit over the years. The company has reserved 1.76 million of the 8 million shares in the IPO for the DSP.

Some invitees express concern about Reddit's financial standing, as the company recorded a net loss of $90.8 million in 2022, an improvement from the previous year's deficit of $158.6 million. Reddit's prospectus indicates that the company has accumulated a total loss of $716.6 million.

Reddit is facing competition from various platforms such as Facebook, YouTube, Instagram, TikTok, Wikipedia, Discord, and Twitch for advertising dollars in a challenging market.

BuckRowdy, a moderator who requested anonymity, informed CNBC that he is not participating in the IPO and his viewpoint seems to be commonly held.

"BuckRowdy, who oversees subreddits such as r/UnresolvedMysteries and r/TrueCrime, stated that people tend to have a pessimistic outlook about the stock market, believing that it will decline immediately and result in financial loss. However, he noted that he has not encountered anyone in his community who takes it seriously as an investment opportunity."

Reddit didn't provide a comment for this story.

Meme stocks

Of all companies, Reddit knows something about stock market volatility.

The r/wallstreetbets subreddit on the site played a significant role in the 2021 meme stock boom, which saw rapid increases in the value of stocks like GameStop and AMC, despite any changes in their business fundamentals.

It's a risk the company acknowledges in its IPO filing:

If Reddit's DSP followed the lead of companies that went public in 2020 and 2021, it could be a great gift, according to Joshua White, an assistant professor of finance at Vanderbilt University.

White stated that IPO stocks typically increase in value on the first day, making them a good deal.

Since the beginning of 2022, there have been few tech IPOs. As a result, White considers Reddit's offering to be somewhat riskier.

Despite the doubts surrounding the IPO, some Redditors are ready to participate, as indicated by forum discussions.

In the r/RedditIPO subreddit, a user with the handle FormicaDinette33 stated that they plan to buy 10 shares to experience the process, while SpindriftRascal plans to spend $5,000 to be happy if it performs well and not worry much if it fails, as per a post.

Sweatycat, a moderator of the r/IAmA and r/LifeProTips subreddits, plans to participate in the IPO, stating that they "both like Reddit as a company and see this as a potentially good investment opportunity." However, the Redditor, who wished to remain anonymous, mentioned that other moderators may have "mixed feelings" about Reddit going public due to their "strained relationship" with management.

Wrestlegirl, who oversees the AEWOfficial subreddit with over 100,000 wrestling fans, views the stock purchase program as a "nice gesture" but not a "reward" and doesn't foresee it as a "long-term stable investment."

Wrestlegirl, who requested anonymity, informed CNBC that owning the stock may be "a fun thing to have or a cool story to share later, but I don't think anyone is taking Reddit's public offering seriously."

'It's being mocked so much'

Akaash Maharaj, a Canadian resident, is not eligible for the program. He stated that he would decline an invitation to participate, even if he were eligible, due to concerns about the business. Additionally, he believes that moderators should not prioritize improving the company's share price at the expense of the "long-term identity of the platform."

Few Redditors are enthusiastic about the IPO, according to Maharaj, as he told CNBC.

For nearly five years, Maharaj has served as a moderator on the r/Equestrian forum, which boasts a community of 72,000 horse enthusiasts. Additionally, he is a member of the Reddit Mod Council, an elite group of influential users who work together to enhance the site and ensure that decisions are made with the best interests of all users in mind.

Maharaj chuckled and said, "Our track record there is not entirely positive."

Although Maharaj is uncertain about the IPO and not optimistic about the stock, he believes the DSP could be a "smart" move by management to encourage investment and prevent any interference from the Reddit community during a significant milestone in the company's history.

If the Redditors had not acted, there would have been a higher chance that the stock would have been negatively criticized during its market launch, according to Maharaj. The company is stating that purchasing shares will result in profits, but only if the IPO process is not disrupted.

Despite the negativity among moderators, Wrestlegirl believes that a significant number of them will participate in the IPO.

"The mockery of it has become almost a meme," she said. "I believe many of those jeering secretly desire to be included in the GameStop movement if it continues."

Courtnie Swearingen says she won't be one of them.

Swearingen, an attorney, has been a Reddit moderator for approximately 13 years, currently overseeing forums related to music and her hometown of Chicago. Over this period, she has developed a mistrust of the company. In 2015, following the contentious dismissal of Victoria Taylor, a Reddit employee, hundreds of moderators, including Swearingen, locked their subreddits in a protest led by her.

Swearingen, who was involved in the ordeal, was flown to San Francisco by Reddit to gather feedback and clear the air. However, she has not noticed any significant improvements and no longer anticipates positive changes.

"Swearingen stated that every time something is promised or new ideas are presented, it never goes well. Even with the opportunity to buy in, he would not because he cannot risk money on a company he hasn't been able to trust for a decade."

— CNBC's Cameron Costa contributed to this report

Ellen Pao, former Reddit CEO, believes there is a powerful core element to Reddit.