2019 was a massive year for initial public offerings (IPOs) and 2020 is giving it a run for its money.
Despite the turbulence caused by coronavirus, 2020 has also been a bumper IPO year. Lemonade and Nikola Motors both made waves with their stock market debuts, and we expect to see IPOs from apps like Airbnb, Snowflake and Bumble too.
IPOs can be big opportunities to keep tabs on as a trader or investor.
So, to keep across all the upcoming IPOs we’ve made this IPO tracker! Wahey!
You can check out which companies are rumoured to be considering an IPO, which have filed for an IPO or just check out any of the companies that have recently completed an IPO.
An IPO is a process where a private company sells shares to public investors for the first time and lists on a stock exchange.
The main reason a company would have an IPO or “go public” in this way is to raise money by selling its shares. The money raised can help the company expand its business further and pay back anyone who’s helped fund it up until that point.
The main benefit of an IPO is to raise capital quickly for the business. By issuing shares to a large number of investors, a company can use this cash to grow the business (e.g. research, infrastructure, expansion).
Publicity is another major benefit of an IPO. Lesser-known companies can steal the limelight for a few days or week, which helps increase business opportunities. For example, a publicly listed company comes with a degree of prestige and pedigree. This can also help people attract top talent to the business to help fuel growth.
An IPO can take six to nine months, but it could end up being much longer. During that period, the company’s management team will have to devote a lot of time to the process, depriving them of the time they also need to spend on the business and making it a success.
Similarly, an IPO costs a lot of money. Companies usually consult with financial and legal experts, which comes at a big cost. On top of that, once a company is public, it has additional admin duties to fulfil (additional accounting/reporting and more documents to disclose how the business is being run). All of that costs money.
Part and parcel of going public includes being answerable to shareholders. If shareholders have a big portion of ownership of a company, they can then override management choices and decisions. Shareholders can also vote to remove managers and senior staff. Under pressure to perform well for the shareholders, many businesses end up making poor decisions, focusing on short-term wins instead of building a long-term business.
A recent example of an IPO is Uber, which went public on 9 May 2019. Uber’s price was set between US$45 and US$50 per share with a targeted valuation between US$80 billion and US$90 billion. It announced an IPO with an offering of 180 million shares at US$45 per trade and began trading at US$42 per share on the New York Stock Exchange (NYSE) on 10 May 2019.
It has been a less than 5-star experience for Uber since then, currently trading at just over US$37 per share. This doesn’t mean that Uber’s share price is driving downhill in the future, though. There’s plenty of potential for it to rise again.
When starting out, a company is private. It usually starts with a small number of shareholders, often including the founders’ family and friends and any professional investors.
When the company is at the stage that it wants to “go public”, it starts the process of an IPO. It might choose to make a public announcement of its plans and it starts to advertise to underwriters.
An underwriter prices the shares of the company and the existing shares of the company are converted into public ownership at the new value. The company needs to ensure it meets the requirements for public companies, often needing to appoint a board of directors.
On the IPO date, the company issues its shares.
Usually, the initial share price offered by the company is reasonable, but investors investing in an IPO should expect volatility in the share price immediately after the company floats, such as the earlier example from Uber.
Most investors who choose to invest in an IPO do so because of the opportunity to invest in younger companies. The added risk gives a higher potential return, but it also has higher potential losses.
Factors that determine the valuation of an IPO include:
If you’re keen on investing in a company soon after its IPO, you’re going to need an investment account. Compare the UK’s leading brands below.
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