IPO
The first time a private company sells shares to the public on a stock exchange, raising capital and creating a tradable market for the stock.
An initial public offering (IPO) is the process by which a private company transitions to a public company by offering its shares on a regulated exchange for the first time. The company works with underwriting banks to price and distribute the shares.
In the IPO, the company (and sometimes existing shareholders) sells shares to institutional investors at the offer price, set the evening before the first trading day. On day one, the stock begins trading on the open market — often at a significant premium or discount to the offer price.
IPOs come with a lock-up period (typically 90–180 days) during which insiders cannot sell. When the lock-up expires, float expands and selling pressure can weigh on the stock. Not all IPO pops are sustainable — many high-profile IPOs underperform significantly in their first year.
Example
A tech company sets its IPO offer price at $20. Institutional investors buy 50 million shares, raising $1 billion for the company. On the first trading day the stock opens at $32 — a 60% pop. Six months later, when the lock-up expires and insiders can sell, the stock fades to $25.
Related Terms
Float
The number of shares freely available for public trading, excluding insider-held and restricted shares.
IntermediateMarket Capitalization
The total market value of a company's outstanding shares. Market Cap = Share Price × Shares Outstanding.
BeginnerPreferred Stock
A hybrid share class with fixed dividends and liquidation priority over common stockholders, but usually no voting rights.
IntermediateSecondary Offering
A new share issuance by an already-public company, or a large block sale by existing shareholders. Dilutive if the company issues new shares.
IntermediateTicker Symbol
The unique letter code that identifies a publicly traded security on an exchange — AAPL for Apple, TSLA for Tesla.
Beginner