"Initial Public Offering (IPO)" means the first day that a company gets listed on the stock exchange for its stock trade. In this process, a certain number of shares are offered to the public for the first time. Buying the stock of the IPOs can be profitable or not based on many factors. For example, if a company's stock is offered during an economic decline, demand for the initial offer may decline. Consequently, the stock's price for that IPO declines. However, during the economic boom, the demand for the stock goes up. Fundamental analysis of the stock price is necessary before getting involved in a certain IPO. If the intrinsic value of the company is higher than the initial price offered in the IPO, it might be a good time to buy. There are various strategic reasons why companies decide to go public. Many advantages and disadvantages are associated with a company's IPO decision.
Advantages of going public
First, the greatest advantage of going public is the opportunity to raise capital and increase liquidity for the company. This allows the company to spend a portion of capital for business development and expansion. Second, the IPO generates publicity for the company, and it may bring new business opportunities (business partnership, merging, and acquisition). Third, it adds to the prestige of the company and motivates new talents to work in the company.
Disadvantages of going public
First, the whole process is time-consuming and requires a lot of time and energy. The company may require to spend some of its resources on this process that may hurt business for a long time. Second, it must answer to shareholders. Shareholders may also vote on different company management and strategic decisions. Consequently, public companies may feel pressure to perform well.
Examples of successful IPOs
The best-performing IPOs are the small, fast-expansion, with little media coverage IPOs. IPO's performance on the first day may be used as an indicator of its price projection in the future. A few examples of successful IPOs are Alibaba Group Holding Limited, Visa Inc, Facebook, and AT&T wireless.