Initial public offering (IPO)

An initial public offering (IPO) is the first time a private company sells its shares to the public, raising capital and listing its stock on an exchange. After the IPO, anyone can buy and sell the shares in the secondary market.

How it works

The company hires underwriters and files a registration statement, a Form S-1 for US companies or Form F-1 for foreign issuers. Many companies submit confidentially first and file publicly later. The SEC reviews the filing through rounds of comments. Once the S-1 is near final, the company sets a price range and launches a roadshow to market the deal to institutional investors. The deal is priced the evening before trading begins, the final prospectus is filed under Rule 424(b), and shares open on the exchange the next day once the opening auction clears.

Key terms around an IPO include the lock-up period (commonly 180 days), the greenshoe option for underwriters to sell extra shares, and the quiet period on research.

Why it matters for traders

First-day "pops" get the headlines, but IPO performance is uneven. The opening price often differs sharply from the offer price, and most of the first-day gain can go to investors who received allocations. Watch whether the deal was upsized or priced above the range, which signal strong demand, the size of the float, and the calendar of later catalysts: first earnings report, research initiations after the quiet period, and lock-up expiration.

Example

Hypothetical Northwind Cloud (NWCL) files an S-1 and sets a range of $18 to $20 for 10 million shares. Demand is strong, so it prices at $22, above the range, raising $220 million. The stock opens at $30 and closes its first day at $28, up 27% from the IPO price.

FAQ

Can retail investors buy shares at the IPO price?

Sometimes, through brokers that receive allocations, but most shares go to institutions. Most retail investors buy once trading opens, often at a different price.

How long does an IPO take?

From hiring banks to the first trade, typically several months to a year, depending on SEC review and market conditions.