3 Reddit Executives Sold Too Early And Missed Out On $19M In Additional Gains From IPO

The Reddit Inc RDDT IPO was one of the most anticipated public debuts in recent years and saw shares soar after going public.

Three of the company's top executives sold portions of their ownership stakes as part of the IPO process and missed out on millions of dollars in gains.

What Happened: Reddit sold 22 million shares in its IPO pricing shares at $34, which was the top of its $31 to $34 anticipated pricing range.

As part of the IPO, several executives sold portions of their stakes in the company. Shares of Reddit fell Thursday, with social media abuzz over filings from the executives selling.

Many times during an IPO, founders, executives and investors may sell shares as part of the offering. Otherwise, these individuals and companies are often the subject of lock-up agreements where they can't sell shares for several months.

Among the sellers of Reddit shares during the IPO were co-founder and CEO Steve Huffman, Chief Operating Officer Jennifer Wong and Chief Financial Officer Andrew Vollero.

Here's a look at the sales that were part of the IPO and previously disclosed in the IPO prospectus.

• Huffman sold 500,000 shares
• Wong sold 514,000 shares
• Vollero sold 71,765 shares

New filings from the company show that all three sold shares at a price of $32.30, which was in the pricing range of the IPO and below the official pricing.

After the sales, Huffman owns 710,306 shares, Wong owns 1,736,813 shares and Vollero owns 681,660 shares.

The sales netted nice returns for the executives, but also came with missed future profits based on the current share price of Reddit.

• Huffman's sale worth $16.15 million would be worth $25.25 million today, missing out on $9.1 million in further gains.
• Wong's sale worth $16.60 million would be worth $25.95 million today, missing out on $9.3 million in further gains.
• Vollero's sales worth $2.32 million would be worth $3.62 million today, missing out on $1.3 million in further gains.

Related Link: ‘Level The Playing Field’: Reddit CEO Reveals On IPO Day He’s A Member Of WallStreetBets

Why It's Important: The drop in share price on Thursday might leave investors puzzled about the timing of the sales, casting a shadow over the stock and potentially driving shares below their post-IPO peaks.

While stock sales by investors are frequently viewed negatively, such transactions can be part of a pre-arranged investment strategy, aimed at covering tax obligations, or executed as part of a retirement strategy.

While Huffman sold the company, alongside co-founder Alexis Ohanian, for $10 million in 2006, the IPO marked another opportunity to cash out a portion of his ownership in the company.

Wong and Vollero may also have received stock options and equity as part of their compensation for working with the company.

A more telling sign in the future could be if insiders and investors sell more shares when lock-ups expire, which could suggest that they are not as confident in the company going forward.

RDDT Price Action: Reddit shares fell 14.60% to $49.32 on Thursday, versus a trading range of $45.05 to $74.90 since going public.

Read Next: Humble Beginnings: Like NVIDIA, Reddit Was Founded Inside A Restaurant

Photo: Shutterstock