Watch: The Initial Public Offering Pop Explained

We’ve covered the IPO process on this channel in a previous video, now, I want to talk about a trend that’s apart of this process, a practice / trend that, as a normal business practice, cheats companies out of great amounts of funds. This trend is referred to as the IPO “pop”.

In this video, we discuss how an IPO pop affects a company on its IPO day.

Transcript

Historically, IPOs tend to pop, go up in stock price on the first day of trading, meaning that they were underpriced relative to what the market is actually willing to pay for the company’s stock. In the traditional IPO process, companies enlist the help of underwriters to help them complete the IPO process.

The underwriters help the company prepare its S-1 SEC filing, tell the story of the company, and pitch it to institutional investors. Institutional investors then get the opportunity to buy a large chunk of the company’s stock before other investors have a chance to on the day of the IPO.

The problem here is that the underwriters don’t actually work for the company that’s going public. There are three stakeholders in the IPO process:

• The company going public