Core points
IPO means that a company sells its shares to the public for the first time
IPO can raise funds and enhance brand image for the company.
There will be a high cost in the IPO process.
Investors who participate in IPO can get arbitrage opportunities, but there is also a risk of loss.
Detailed explanation of concept
IPO is the abbreviation of initial public offering (Initial Public Offerings), which refers to the way in which a company sells its shares to public investors for the first time through a stock exchange. The process of investors subscribing for shares in IPO is called Daxin.
IPO is a very important milestone for most companies, which means that the development of the company has made phased achievements and has been recognized by the public. The company will also be transformed from a private company to a listed company, and the company's shares can be bought and sold freely on the stock exchange. At the same time, after listing, the company, as a public company, needs to disclose financial reports and major operating information regularly and be subject to the supervision of the public and regulatory agencies.
Advantages of IPO to the company
1. Raise the funds needed for business development.
2. Increase the exposure and enhance the influence of the brand.
3. It is beneficial to attract and motivate core talents by means of equity incentive.
4. The early investors of the company can exit healthily through the public trading market.
The disadvantage of IPO to the company
1. High fees will be incurred in the process of IPO.
2. In order to maintain the short-term stock price, it may affect the long-term development strategy.
3. if the equity is dispersed, the major shareholders may lose control of the company.
Income from investors' participation in IPO
In order to go public smoothly, most companies are willing to issue at a discount, and there is an arbitrage opportunity to subscribe for new shares.
Take Hong Kong stocks Daxin as an example, new shares listed in 2020 rose an average of 18.2 per cent on the first day, while those listed in October before 2021 rose an average of 15.9 per cent on the first day.
The risk of investors participating in IPO
Affected by the fundamental texture of IPO, valuation and market sentiment during the IPO period, investors participate in the subscription of new shares, there is the possibility of breaking, resulting in the risk of loss.
Take Hong Kong stocks as an example, the first-day failure rate of new shares listed in 2020 is 33.3%. The first-day failure rate of new shares listed in the first October of 2021 was 38.0%.
