Initial Public Offering - IPO

Initial Public Offering - IPO

The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.

In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market.

Also referred to as a "public offering".

Notes:

IPOs can be a risky investment. For the individual investor it is tough to predict what the stock will do on its initial day of trading and in the near future since there is often little historical data to analyze the company with. Also, most IPOs are of companies going through a transitory growth period and are therefore subject to additional uncertainty regarding their future value.

See also: Direct Public Offering, Eating Stock, Greenshoe Option, Gross Spread, Gun Jumping, Lock-up Agreement, Prospectus, Public Offering Price (POP), Red Herring, Stock, Takedown, Underwriter