What is an Initial Public Offering (IPO)?

Key Takeaways

• IPO is a way of raising funds without a loan.

• An IPO is a company's transition to a publicly traded stock.

• Due to limited public information, investing in an IPO may be risky.

Understanding an IPO

An initial public offering is a process by which companies issue their shares to the public for the first time on a stock exchange. Put simply, it’s a transition from a private company to a public company.

Why is there an IPO? From the companies' point of view, they can raise additional capital by selling their shares to the public for future expansion. For investors, they can invest and share in the profits of publicly-traded companies.

If the IPO performs well in the market, it's a win-win situation for both parties. However, all investments involve risks. Stock issuance is no exception. Please read the prospectus carefully before buying a new stock.

Example

Snap went public on March 2, 2017, with an offering price of $ 17 per share under the ticker of SNAP. It opened at $24 in its market debut, with a market capitalization of about $33 billion.

The IPO hype lasted only two days. Its stock price was on a downward trend later. However, Snapchat's share price has continued to refresh records and soared more than 300% since 2020.

FAQs

• How do I invest in an IPO?

The public can participate in the IPO in two ways: buy directly from the underwriter or the secondary market.

• How to learn about an IPO company?

Unlike existing listed companies, newly listed companies previously disclosed very little information.

Blind investment can bring huge risks. Therefore, please read carefully the prospectus of the company to be listed, which contains a wealth of information required by the regulators.

• What factors might affect IPO performance?

In addition to the company's profitability, industry prospects, and institutional investors' views, IPO performance may also be affected by many other factors.

For example, market sentiment, demand, liquidity, and transaction volume... will all factor into the post-IPO performance.