Question

An IPO is the process of making a private corporation public by offering shares. Through public share issuance, companies are able to increase the capital they receive from investors - further incentivizing companies to move towards IPOs. By becoming public, companies increase their potential to grow as private companies have limited funds that subsequently limit their growth. Because a company becomes public, they are required offer more transparency that can be appealing to consumers leading to increase in revenue. There are more constraints as public companies are held to SEC standards. Successful IPOs require knowledgeable underwriters to evaluate the risk associated with going public. An underestimating the risk can push a company go public before they are ready and not raise the capital they expect. In order to be deemed successful, companies must demonstrate an excess of $120 million (the median) in raised capital, a high valuation, and large consumer recruitment Snapchat's IPO for example was successful. They were trading $0.44 above the initial offering price. However, snapchat could have been more successful, but their underwriters were on the conservative side. They priced shares at $17, while it has reached $25. However, this is better than the alternative of pricing the shares too high and overestimating the return. However, in contrast, Groupon's IPO was not successful. While shares were initially priced at $20, they dropped drastically to less than $5. This was more of a result of their business model which depended heavily on other companies using their services. While companies are willing to offer discounts to entice consumers, they cannot do this long-term or frequently

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This is answer to this question Recently there has been a surge of IPOs – Snapchat, Carbon Black, Lyft, Huya, Uber (pending), etc. Were they successful and why? What does it take to have a successful IPO? I need response or comment to the answer

Answer 1

Response to the question :-

Recently there has been a surge of IPO's and all of them were not successful.One of the major reason of their failure was valuation of prices of share in the IPO.The prices of shares were overvalued which leads to under subscription of shares.

Snapchat IPO was successful as it was fairly priced and on the date of listing it provides tremendous return to subcribers of shares whereas Groupon's IPO was overpriced and investors gets heavy loss on the listing date of the shares.Lyfts IPO was also failed because of similar reasons.

The sucess of an IPO is measured in terms of amount of subscription,appreciation in the share price, valuation of share etc.

To get a successful IPO following points must be considered :-

1) The pricing of share is most important it must be fairly priced so that it attracts investor.

2) Company's ability to generate cash inflow and it's consistency.

3) Long term objecive of Company ,it's future planning and capability of its management team.

4) IPO offer size and price of share should be calculated after considering the fundamentals of company or at which stage company is considering its IPO.