Reddit share value rose 86%, but sales by CEO and COO saw reversal [U]

Redditors who took advantage of their privileged access to stock ahead of the IPO have seen Reddit share value rocket from $34 to $59.80 by yesterday’s close – an 86% increase.

Update: Subsequent share sales by the company’s CEO and COO – coupled to a report describing the stock as “grossly overvalued” – saw the price fall to $49.32, below the closing price on the day of the IPO …

CNBC reports on the latest development:

Reddit shares began their downward spiral on Wednesday, when they sank about 11% to $57.75 at market close. That day, Hedgeye Risk Management described Reddit’s stock as “grossly overvalued” in a report cited by Bloomberg News, adding the company was on the firm’s “short bench.”

Earlier this week, Reddit disclosed in a corporate filing that CEO Steve Huffman sold 500,000 shares. Ben Silverman, vice president of research at Verity, told CNBC the move was expected and represents just “a portion of his holdings.”

Meanwhile, Reddit Chief Operating Officer Jennifer Wong disclosed that she sold 514,000 shares and now holds 1.4 million of the company’s shares.

While an IPO does provide existing shareholders with an opportunity to convert some of their paper wealth to cash, and isn’t an entirely unexpected development, the scale of the sales is leading some to question the execs’ faith in the company.

Original story follows:

Early private investors have seen even greater returns, with OpenAI CEO Sam Altman seeing his own stake in the company grow from $200M to over $600M – and some analysts believe market confidence in the stock could be good news for the tech sector as a whole …

Prolific Redditors got early access

Prolific Redditors were given preferential access to the stock, able to buy shares ahead of the IPO through a Directed Share Program. This type of access is usually reserved for major investors.

Not all were impressed by the offer, with some viewing it as risky to invest in a company which has made a loss every year since it launched.

One particular concern was how members of the subreddit r/WallStreetBets might respond. Members caused chaos when they started investing heavily in GameStop in order to drive up the share price. This was done to profit from professional investors who had shorted the company and were then forced to buy stock at the inflated price to make good their position. The fear this time was that they might do the opposite: short the stock in order to drive down the price.

Launching at $34, heavy demand saw the stock jump 48% on the first day of trading. It continued to rise yesterday, hitting $59.80 by close of trading.

Reuters reports that most investors believe the trend will continue, with strong demand for bullish options – aka bets that the share price will further increase.

“The action is on the call side and collected around the upside,” said Ophir Gottlieb, chief executive of Los Angeles-based Capital Market Laboratories. “With the stock trading higher on Day One, this feels like speculation for higher moves.”

Could signal good news for other tech startups

CNBC says some analysts see this as good news for the prospects of other tech startups looking to go public, with Plexo Capital managing partner Lo Toney among them.

Toney told CNBC that Reddit’s debut was “a positive sign not only for Reddit, but I think also the tech industry and what it might mean for future IPOs.”

“One thing we know with certainty is that there [was] a lot of investor appetite during the roadshow for Reddit, and we see that it’s continuing to hold up well,” Toney said. “Clearly the market is signaling there’s an appetite for more companies to come to the public markets.”

He did caution that we’d need to see the results of further IPOs to be sure, and that some well-funded startups may be content to remain private for now.

Image: 9to5Mac

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