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Has Reddit’s stock IPO been a huge scam?

Has Reddit's stock IPO been a huge scam?
Elmaz Sabovic

The long-awaited Reddit IPO (NYSE: RDDT) didn’t unfold as anticipated. RDDT stock has experienced significant volatility, surging by 30% at one point but also plummeting by the same amount, leaving its current price almost identical to its debut price at $50.45.

While many blame short-sellers and its recent meme stock status for its lack of progress, the reality might be more intricate, involving Reddit’s executives. 

Since going public on March 21, Reddit executives, including CEO Steve Huffman, have sold over $40 million worth of RDDT shares, further exacerbating its performance in the stock market.

Insider trading of RDDT stock. Source: finviz
Insider trading of RDDT stock. Source: finviz





Alarming signs about RDDT stock

The initial volatility highlights RDDT’s potential to evolve into a meme stock, largely fueled by speculation. Reddit acknowledged this risk in its S-1 filing, warning about platforms like r/WallStreetBets potentially triggering short squeezes. Despite this, the stock was offered to traders, and notably, the first to profit from it were the executives who had cautioned about its potential downsides.

Another significant shortcoming is the absence of a post-IPO lockup period for its executives. This means that company insiders cannot sell shares during a typical lockup period lasting between 90 and 180 days after the IPO.

RDDT stock price chart

Following the April 2 closing, RDDT stock was priced at $50.45, marking a 9.75% increase during the latest session. However, the past five trading sessions have been unfavorable for RDDT shares, with a decline of -25.46%, nearly wiping out all the progress made since their debut on the NYSE.

This setback implies that Reddit stock has only gained 0.02% in value since its IPO on March 21.

RDDT's stock price progress since its IPO. Source: Google Finance
RDDT’s stock price progress since its IPO. Source: Google Finance

The recent insider trading is bound to prompt questions within the trading community, especially following the losses suffered by RDDT stock. This could potentially tarnish its reputation going forward and further reduce its valuation.

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