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As companies file their S-1 to go public, they typically estimate an initial price range for their offering and send investment bankers and equity sales teams around the globe to generate interest in it.
Once the quiet period ends, shares begin trading and the company officially becomes a public corporation.
Post-IPO Stock Performance Patterns
Going public can be an enormously transformative step for any company, opening the doors to capital for expansion, increased visibility among investors and better credibility when seeking debt financing.
However, stock prices don't necessarily surge immediately following an IPO. Many factors impact post-IPO stock performance such as analysts' estimations of valuation and earnings growth as well as actual financial results reported by the company over time.
Employees receiving equity compensation during an IPO should be aware that they likely won't be able to sell their shares until after the lockup period ends, typically 90-180 days post-IPO. They should plan ahead and diversify their portfolio accordingly in the meantime. According to research, companies with larger sales on day one tend to outscore those with smaller ones in terms of long-term performance over three years - likely supporting the idea that more businesses are waiting longer before going public, increasing sales and market penetration before embarking on their IPO journey.
Post-IPO Stock Price Changes
Once companies complete an initial public offering (IPO), they must come to terms with the fact that their stock will fluctuate as they embark upon new stages of growth. Investors' perceptions will change rapidly regarding how a company should be valued; its stock may move either up or down depending on market forces.
As such, initial public offerings (IPOs) can have dramatic ramifications on one's portfolio, and it is critical that investors are prepared for their volatility. Employees of companies going public may want to use this as an opportunity to cash out shares and use that money towards other stocks or savings accounts.
Pre-IPO shareholders often see an IPO as an event which provides them with liquidity; especially venture firms and growth equity investors who must liquidate positions quickly in order to meet regulatory requirements of their funds. It can also serve as an invaluable opportunity for management, providing them with the chance to build relationships with prospective investors while earning credibility through share listing.
Post-IPO Stock Price Increases
As soon as a company becomes publicly traded, its stock will fluctuate naturally - an integral part of the process that helps establish an accurate market valuation.
Investors rely on this data to help make decisions about whether to exercise their options or sell their shares to the public, while companies preparing an IPO can use it to understand demand for the new shares they may issue.
Employees who have received shares as part of their equity compensation should develop a plan for managing their share sales (including taxes and obligations) when the lockup period ends, including how to navigate tax obligations and manage hedge positions until their shares open for trading in an open trading window or set up a revolving credit line to fund tax payments.
Post-IPO Stock Price Decreases
An initial public offering (IPO) can be an exciting moment in any company's journey, yet also represents a pivotal juncture of their development as they must learn how to manage both public perceptions they cannot influence and the volatility that comes with concentrating their stock ownership.
After their initial day of trading, many companies will find their initial public offering (IPO) price falling due to investors selling shares for profit or due to underwriter adjustments based on market demand.
Employees receiving equity compensation through an IPO may face post-IPO lockup periods of 90 to 180 days that could limit their ability to sell. After an IPO, it is crucial to initiate operations in investor relations (IR) and public relations (PR). IR should include building lists of family offices and other investors while PR aims at reaching the general market as well as garnering media coverage.