Special Purpose Acquisition Companies (SPACs) are shell companies that go public for the sole purpose of later acquiring a private company. Both can impact a new IPO stock’s share price, especially in the near-term. A company may choose a direct listing over an IPO if they are confident there is already enough demand for their stock from the public, or if they wish to avoid a lockup period.įor investors, the key differentiators of a direct listing versus an IPO is less guaranteed demand for shares and earlier opportunities for company insiders to sell shares. Also known as a Direct Public Offering or Direct Placement, a direct listing is when a private company offers their shares directly on a stock exchange, bypassing the traditional underwriters and roadshow. Your clients may have asked about the Coinbase ( COIN ) or Spot ( SPOT ) direct listings, and what the difference between a traditional IPO and direct listing really is. In the last few years, several stocks have gone public through Direct Listings. While this price drop may not be caused by any fundamental shift in the company’s outlook, you and your clients should be aware of its potential impacts. Once the lock up period ends, selling pressure from insiders can lead to a sharp drop in the stock price. Conversely, the price could decrease below the offering range on the first day of trading, and lose a lot of value in a short time.įinally, be wary of the “lock up period.” The SEC prevents insiders (usually employees and early investors) from selling shares during the first 90 days of trading. If your client is interested in buying right away, inform them that they may miss the short window in which they can get an attractive price on their trade. It can be harder for ordinary investors to take advantage of a potential pop because prices adjust very quickly once public markets get access to IPO shares.įor that reason, purchasing a new IPO stock at its offering price can be difficult -something Robinhood is trying to change, and we’ll explain how shortly. While everyone who buys a new IPO stock is interested in a “pop” - when a new stock’s price surges on its first day of trading - institutions that subscribed during the roadshow stand to gain the most. After the roadshow is completed, the IPO price is set based on investor demand. The goal of a roadshow is to generate demand for the new stock from the investment community. Underwriting: The Traditional Way of Pricing an IPOīefore listing on a public exchange, companies first go on a “roadshow” and market their shares privately to large institutional investors.
If your client is interested in a new stock, they should first understand a few key facts about IPOs, and the most important metrics for analyzing them. Many directly-listed IPOs saw success early on in their publicly-traded lives, especially Robinhood:ĭownload Visual | Modify in YCharts Investing in New IPO Stocks Then, there’s the case of Robinhood, whose IPO blended elements of both the traditional and direct listing methods, completely shaking up how initial offerings are conducted.
Several companies have recently gone straight to the exchange via direct listing or SPAC, opting to bypass institutional banks and underwriters that typically handle IPOs, along with the hefty fees they charge. However, new ways of going public have gained in popularity. As such, limited information about new IPO stocks can cause the market to feel it is mispriced, and lead to dramatic swings in the share price. It’s also the first opportunity for most of the market to dig into the company’s financials. While the potential to win big on a new stock may be alluring to a client, there are some key considerations to make before investing.Īn IPO, or Initial Public Offering, is a company’s first stock offering to public investors.
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Is your client excited about new IPO stocks hitting the market like Robinhood ( HOOD ), but you’re unsure how to approach the conversation? Considering the fanfare around major IPOs, they can be hard to ignore - but it isn’t always easy to decide whether to invest in one or not.
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