Reddit’s ‘unusual’ move to reward loyal users in its IPO could prove lucrative for Redditors

The social network said it would offer site moderators an undetermined number of shares, according to its Form S-1, with more details coming at a later date. Though companies typically reserve some shares for retail investors, the vast majority of stock at the IPO initially goes to institutional investors and the wealthiest individual investors. The public can eventually buy in after the stock is listed on an exchange, but often the price will have risen by then. In other words, an initial public offering isn’t, usually, open to the public.

Reddit’s move is to appeal to its loyal user base and create a deeper sense of ownership among those who already contribute a great deal of their time to managing the site, says Kyle Stanford, an analyst at PitchBook. Connecting their currently unpaid work to the company’s longterm performance could engender even greater loyalty—and some good PR in the process.

“It’s unusual. It’s a nice goodwill thing,” says Stanford. “There’s a lot of benefit that these community-driven apps can receive.”

CEO and cofounder Steve Huffman noted as much in the S-1: “Our users have a deep sense of ownership over the communities they create on Reddit. This sense of ownership often extends to all of Reddit. We want this sense of ownership to be reflected in real ownership—for our users to be our owners. Becoming a public company makes this possible.”

But loyalty could come at a cost: If the stock price sinks after the IPO, individual investors are more likely to panic and sell, potentially creating a death spiral. Institutional investors, traditional thinking goes, have a stronger stomach for riding out…