**Reddit Stock Faces Potential Volatility as Major Shareholder Plans to Sell $1.2 Billion in Shares**

In a surprising move that has unsettled Reddit (NYSE:RDDT) stockholders, Advance Magazine Publishers, a major stakeholder, has announced its intention to sell up to $1.2 billion worth of Reddit shares. This action, expected to lower Reddit's share price, has created a sense of apprehension among retail investors. However, some optimistic investors view the potential price drop as an opportunity to buy shares of Reddit at a lower cost, given their confidence in the company's core strengths.

Advance Magazine, which holds a 30% stake in Reddit, plans to offload 7.8 million shares, pricing them between $145.38 and $148.54 per share. Currently, Reddit shares are trading at $158.02 each. The sale's proceeds will be used as collateral for securing a credit facility, according to a report from Yahoo.

Notably, Advance Magazine is not exiting its investment in Reddit. Instead, the company is strategically leveraging its shares to obtain a loan. To maintain its influence over Reddit, Advance is also purchasing derivatives on its shares. These financial instruments derive value from underlying assets, allowing Advance to retain significant control without fully divesting.

Concerns arise mainly if Advance encounters difficulties in repaying the loan. Failure to meet repayment terms could result in the lender claiming the Reddit shares used as collateral, thus affecting the stock's market price. If Advance successfully meets its obligations, the fear of a significant price drop due to this development may be unwarranted.

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This article originally appeared on GuruFocus.