Sep
11
2023
How to Find Upcoming IPO Stocks Before Listing Day

How to Find Upcoming IPO Stocks Before Listing Day

By | Growing Wealth, invest, Investing | Comments Off on How to Find Upcoming IPO Stocks Before Listing Day

Accessing and purchasing a stock at its initial public offering (IPO) can seem like a VIP invite to a party. In addition to the cache of being “in the know” about potential opportunities, IPOOwing to the excitement that can accompany news of an upcoming initial public stock offering (or IPO), many investors seek ways to learn more about these companies prior to the listing day. Fortunately, there are many resources and services that track upcoming IPOs.

Using these IPO trackers, it’s possible to learn more about the status of various public offerings.

For investors interested in buying IPO stock prior to its actual public offering day, that can be more complicated. If a company launches an IPO, it means that it’s only had private investors, such as angel investors, up to that point but it’s now ready to let other investors purchase shares.

Key Points

•   It’s possible to find upcoming IPO stocks before listing day with the use of resources such as media outlets, exchanges, brokerages and financial institutions.

•   When people talk about getting IPO stock at IPO prices, they may be referring to the offer price available to a limited group of people, or the price available to all investors once the company goes public.

•   Investors who plan to wait until the unlisted stock debuts may find themselves frustrated that there is little prep time before the stock appears on the market.

•   When considering investing in a company as it goes public, investors should thoroughly vet the company and its financials and ask themselves questions such as whether they understand the business and the potential investment risks.

•   While investing in IPOs can be exciting, they can also be risky and require active management and quick decisions regarding holding or selling.

When IPOs Are Offered to People Prior to Listing Day

When people talk about getting IPO stock at IPO prices, they may be talking about two things:

•   The IPO offering price. This is a fixed price available to a limited group of people. This may include employees who were offered stock options as part of their compensation package, as well as certain investors who get access to the IPO fixed rate. This may be less than the share price set when the company goes public. All of these sales occur before trading day and can be tricky to navigate.

•   The price of new IPO stocks once the company goes public. This is the price that is available to all investors and fluctuates based on market conditions.

Buying IPOs at their offer price can take some navigation, but that does not mean it’s impossible. Typically, offer prices may be offered only to certain brokerages.

One way that buying IPOs at offer prices differs from buying stocks already in the market: Only a certain number of shares are available to each brokerage, and they may be accessible to investors who have the highest account balances or meet other suitability requirements for trading IPO shares.

The trading process is also different: Instead of simply buying the shares, an eligible investor submits an indication of interest (IOI) letter. An investor’s ultimate buy order may be limited due to availability.

In part, this system evolved to protect investors who may be interested in IPO shares because of the headlines about fortunes made overnight. In reality, many investors have lost their fortunes when the IPO has not panned out.

💡 Quick Tip: IPO stocks can get a lot of media hype. But savvy investors know that where there’s buzz there can also be higher-than-warranted valuations. IPO shares might spike or plunge (or both), so investing in IPOs may not be suitable for investors with short time horizons.

How Do You Find Upcoming IPO Stocks Before Listing Day?

Investors who plan to wait until the unlisted stock debuts may find themselves frustrated that there is little prep time before the stock appears on the market.

The secrecy prior to an initial public offering reflects several factors: One is the registration process with the Securities and Exchange Commission (SEC). The company can not publicly sell or trade its stock until the SEC deems the registration statement effective.

Once the company has filed its registration, the company enters what’s known as a “quiet period” where it must adhere to restrictions on what and how much it communicates to the public.

Any “gun jumping” or public communication that nods or hints at an upcoming IPO may violate the Securities Act. But once a company registers with the SEC investors and stock market analysts will keep an eye out for the IPO.

Recommended: What Is the IPO Process? 7 Steps to Going Public

So, beyond combing through the SEC database, how can an investor find new companies going public? There are many resources:

Media Outlets

Media outlets often report on upcoming and rumored IPOs. Reading through market news can be valuable for new and experienced investors alike, allowing them to have an enhanced perspective on how the market is evolving and which companies may be poised to IPO.

Exchanges

Exchanges, such as Nasdaq, also have trackers on upcoming IPOs, although these are IPOs likely to debut within the next several days.

Brokerage News

Brokerages and financial institutions may also report on industry news and trends and may publish IPO tracking.

Vetting Upcoming IPOs

With a range of IPOs taking place in some years, qualified investors will need to vet any potential offering before they decide to add it to their portfolio. If you’re considering investing in a company as it goes public, you’ll want to comb through all of its public documents to see whether its financials look sustainable. Then, ask yourself the following questions:

•   Do I understand the business and the potential investment risks?

•   Is the IPO underwriter a well respected, major investment firm?

•   How are other companies in this space performing?

•   Do the financials justify the IPO price and company valuation?

Recommended: How to Value a Stock

The Pros and Cons of Investing in IPOs

Access to IPO investing can be exciting. It can make an investor feel like they’re investing in dynamic companies that may be shaping the way we live and work. But they can also be risky. Some companies that may get a lot of media attention may fail to live up to investor expectations. Other companies may hit bumps in the road as they adjust to being a public company facing investor scrutiny.


💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

Pros of Investing in an IPO

•   It can be exciting.

•   There’s potential for significant profits.

•   It can allow investors to put their money behind a company they may value, believe in, or otherwise want to be a part of in some small way.

Cons of Investing in an IPO

•   While there’s potential for reward, there’s also risk potential that the IPO may flop.

•   Market fluctuations may require active management and quick decisions when it comes to holding or selling.

•   The volatility of investing in an IPO may require portfolio calibration so that other investments are less volatile.

The Takeaway

While it may be possible to find upcoming IPO stock before listing day (more here), these shares are usually available only in certain circumstances to qualified investors. That’s partly owing to the careful regulation of the initial public offering process, but it also helps to protect eager investors from getting caught up in media hype and making a potentially risky investment on the spur of the moment.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.

Invest with as little as $5 with a SoFi Active Investing account.

Photo credit: iStock/solidcolours

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Sep
11
2023
Going Public vs. Being Acquired

IPO vs Acquisition: Advantages and Disadvantages

By | Growing Wealth, invest, Investing | Comments Off on IPO vs Acquisition: Advantages and Disadvantages

An IPO is an initial public offering, when a company makes its shares available for public trading, and it’s quite different from an acquisition. IPOs are synonymous with entering the public market, while an acquisition is typically when a larger company takes over a smaller target company.

What does IPO mean vs. an acquisition for investors? When a company applies for an IPO, it enters into the traditional process to be listed on a public exchange and get funding. In an acquisition, or takeover, the target company may not survive — or it may thrive, but only as part of the newly combined organization.

Investors contemplating companies at these two different stages would do well to think through the benefits and risks.

Key Points

•   IPOs, or Initial Public Offerings, allow private companies to offer shares to the public to raise capital and enhance visibility.

•   An acquisition occurs when one company buys a significant part, or all, of another company, taking control over its assets and operations.

•   IPOs involve going public to raise funds and gain publicity, while acquisitions entail one company taking over another, potentially merging their resources and strategies.

•   IPOs can provide substantial funds and publicity but involve high costs, stringent regulations, and expose companies to market volatility.

•   Acquisitions can foster growth and innovation but may lead to conflicting priorities, strained partnerships, and brand reputation risks.

How IPOs Work

When companies go public, that’s when a private company decides to sell its shares to investors, to raise capital to fund growth opportunities for the company; create more awareness about the company; or to acquire other businesses, among many other possible reasons.

The IPO is the process of selling securities to the public. The company decides how many shares it wants to offer. The price of the company shares are determined by the company’s valuation and the number of shares at listing, and the funds raised by the IPO are considered IPO proceeds.

Once the IPO is approved, the company is then listed on a public stock exchange where qualified investors can buy shares of the IPO stock. Because IPO stock is highly volatile, it can be risky for retail investors to plunge into IPO investing, so doing the usual due diligence for investing in any type of security is wise.

💡 Quick Tip: IPO stocks can get a lot of media hype. But savvy investors know that where there’s buzz there can also be higher-than-warranted valuations. IPO shares might spike or plunge (or both), so investing in IPOs may not be suitable for investors with short time horizons.

Advantages of Going Public

What are the advantages of going public? There can be many, which is why companies aspire to go through what can be an arduous, time-consuming, and expensive process.

Capital for Investment

The biggest advantage associated with an IPO is fundraising. Once investors start buying IPO stocks, the proceeds from an IPO can be substantial. The company then takes this capital and typically uses it toward internal investments and expansion.

The company can use the funds it raises for research and development, to hire more staff, or expand its operations in other states or countries. There are a variety of ways this new capital can be deployed to benefit the company.

Publicity

In some cases, IPOs generate publicity. This, in turn, can drive more attention to the company and make investors interested in purchasing shares of its stock. IPOs are frequently covered in business news, which adds to the IPO buzz.

However, if there is too much hype, that can contribute to high expectations for the stock, which can also create volatility after the IPO.

Valuation

Some companies that go public can end up having higher valuations. Certainly, that is a hoped-for result of the IPO process. Because the public company has access to more capital and steadily grows its business, the shares of the company can increase in price over time, but they can also lose value — a common occurrence.

Disadvantages of Going Public

What are the disadvantages of going public? There are a series of steps and regulations companies must adhere to in order to have a successful IPO — and the process can be time consuming and difficult.

High Cost

The first factor a company must consider is cost. The company needs to work with an investment bank, which will charge underwriting fees — one of the largest costs associated with an IPO.

Underwriting is mandatory to review the company’s business, management, and overall operations. Legal counsel is also required to help guide the company through the IPO. There are also costs associated with account and financial reporting. Companies will also accrue fees for applying to be listed on the exchange.

Not Enough Information for Investors

From an investor’s perspective, investing in an IPO can also be a challenge. In many cases, individual investors don’t have enough information or historical data on the company’s performance to make a determination on whether an IPO is a sound investment.


💡 Quick Tip: The best stock trading app? That’s a personal preference, of course. Generally speaking, though, a great app is one with an intuitive interface and powerful features to help make trades quickly and easily.

Stock Market Stress

Once a company goes public, it is now part of the public market. This means it is subject to scrutiny, market volatility, and investor sentiment. Every move and decision the company makes, such as a corporate restructuring, merger and acquisition, change in leadership, or release of earnings reports, will be reviewed closely by industry analysts and investors, who will provide their own opinions on whether the company is operating well or not.

While the company’s leadership may not have had to worry about these aspects when it was private, a public company needs to keep these market pressures top of mind.

What Is an Acquisition?

What does it mean for a company to be acquired? Similar to a merger, an acquisition is when one company buys a portion or the whole of another company and all its assets. An acquisition is the process of the acquiring company taking full control of the target company.

If the acquiring company takes more than 50% of the target firm’s shares, this gives the acquiring company control over decision making regarding the target company’s assets. While acquisitions of well-known and larger companies occur and are covered by the news, companies of any size can be the acquiring company or target company.

Advantages of Being Acquired

Being acquired doesn’t have to signal the end of a company — sometimes it can be a lifeline.

Growth

An acquisition can be a strategy for a company to grow into new markets and quickly become a leader in its industry. If the company is working in a competitive landscape, an acquisition helps increase its value and can add to a company gaining more market strength.

Innovation

When one company acquires another, this allows resources and experiences to come together. This may enable the new company to innovate new ideas and strategies that may eventually help grow the company’s earnings. This new partnership can bring together a new team of specialists and experts that can allow the company to develop and reach its goals.

More Capital

When an acquisition occurs, this will increase the cash holdings and assets of the acquiring company and usually allows for more investment in the newly formed company.

Disadvantages of Being Acquired

It’s hard to avoid the negative implications of an acquisition, and investors need to consider these as well.

Conflicting Priorities

In some acquisition scenarios, there may be competing priorities between the two companies that come together. The acquiring company and target company prior to the acquisition were used to working as individual entities. Now, as a newly formed company, both sides must work together to be successful, which is easier said than done. If there isn’t alignment on the goals of the organization as a whole, then there is a possibility that the acquisition may fail, or the transition could be rocky and prolonged.

Pressure on Existing Partnerships

When an acquisition occurs, the newly formed company becomes bigger and it is likely that their goals will grow as well. In the case where the company wants to develop more products to expand into new markets, this could require their suppliers to figure out how they are going to ramp up production to meet the demand.

For example, this could mean the supplier would need more capital to hire staff or purchase additional equipment and supplies to prevent production issues.

Brand Risk

Depending on which companies come together, if one has a poor reputation in their industry, the acquisition could put the other company’s brand at risk. In this case, both of the companies’ identities could be evaluated to decide whether they come together under one brand or are marketed as separate brands.

The Takeaway

Initial public offerings (IPOs) and acquisitions often get a lot of media and investor attention because they can offer opportunities for investors. That said, these two events are quite different.

An IPO is when a private company decides to go public and sell its shares to investors, whereas an acquisition is when a company buys out another, target company. In this case the acquiring company may gain certain market advantages, and the target company will typically lose its decision-making privileges since it is no longer an individual company.

There are a number of pros and cons to IPOs, just as there are advantages and disadvantages to a company being acquired. IPOs can provide a newly minted public company with a lot of growth opportunities — but the IPO process is expensive and time consuming, and being beholden to regulators and investor sentiment is never a picnic.

Acquisitions can be a lifeline to a company that’s struggling in a competitive market. While the takeover can effectively eliminate the target company as an independent entity, its products or brand may continue to exist.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

Is an acquisition an IPO?

An acquisition is not an IPO. An acquisition is when an acquiring company purchases part of or all of a target company to form one new company.

What is the difference between an IPO and a takeover?

An IPO is when a private company decides to go public and sell its shares to individual investors, whereas a takeover is when a company buys out another company.

Is a takeover the same as an acquisition?

An acquisition can be a takeover. This is when two companies decide to come together and become one entity. All the assets of both companies are now part of a newly formed combined company.

Photo credit: iStock/Yuri_Arcurs

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN0623087

Read more
Sep
11
2023
IPO Oversubscription: Definition & Examples

IPO Oversubscription: Definition & Examples

By | Growing Wealth, invest, Investing, Terminology | Comments Off on IPO Oversubscription: Definition & Examples

When an IPO is “oversubscribed” that means certain investors have committed to buy more than the available number of shares that were originally set for the initial public offering.

That’s because when new stocks or bonds are issued via initial public offerings (IPOs), they’re issued in limited amounts, based around the new company’s financing needs and desired debt-to-equity structure.

Depending on investor appetite for the new stocks, IPOs can either be under or oversubscribed; this reflects the level of demand investors have for the shares.

In most cases, though, only institutional investors and accredited investors can subscribe to an IPO stock before it actually goes public. Retail investors may hear about an IPO being over- or undersubscribed, but they typically can’t take advantage of it — although knowing the information may aid an individual’s assessment of the opportunity.

Key Points

•   Oversubscription for an IPO means that investor demand is higher than the available number of shares.

•   Oversubscription can benefit the issuing company by providing additional funding and the underwriting team by generating fees.

•   Early investors may benefit from the initial pop in pricing caused by excitement.

•   Retail investors should be cautious when investing in IPO shares due to potential overinflation and the possibility of a price tumble.

What Is Oversubscription in an IPO?

Investors interested in IPO investing may be interested in an IPO’s subscription status. If an IPO is oversubscribed, that means there aren’t enough shares of the new stock issued to meet initial investor demand at the listed IPO price.

To compensate for this mismatch in supply and demand, the underwriters selling the IPO can choose to either raise the IPO price to reduce demand, or increase the supply of shares to meet demand.


💡 Quick Tip: Access to IPO shares before they trade on public exchanges has usually been available only to large institutional investors. That’s changing now, and some brokerages offer pre-listing IPO investing to qualified investors.

How Does Oversubscription Work?

Oversubscribed IPOs generate a shortage in shares that usually results in a higher price or additional shares being issued, which can lead to more capital being raised for the now-public company. These funds are also called the IPO proceeds.

This contrasts with “undersubscription” for IPOs. Undersubscribed IPOs are caused by the converse scenario happening, where there’s insufficient investor demand to buy all available shares at the listed IPO price.

What Is Undersubscription?

When an IPO is undersubscribed, it generally signals a lack of enthusiasm for a newly public company and may be the result of either poor marketing, overpricing, or poor company fundamentals.

When an IPO is undersubscribed, underwriters may work to reduce the size of the issue, cut the share price, or pull the IPO offering altogether.

In some cases, as a result of contract terms with the issuing company, underwriters may be forced to “eat” the cost of the IPO and purchase remaining shares at a pre-agreed price themselves. This is generally an undesirable outcome for underwriters as it may force them to hold shares on their books rather than flip them to investors.


💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Pros of Oversubscription

Oversubscription can be beneficial to both the issuer and underwriters of new securities, as well as to investors who manage to obtain an allocation of shares around the IPO price.

The issuing company can benefit, as the high demand for IPO shares allows the underwriting team to either reprice the IPO shares higher or offer up additional shares from company reserves to alleviate demand.

In either case, this results in additional funding for the issuing company at more favorable terms while the underwriter generates additional fees.

Early investors to an oversubscribed IPO may benefit from the initial pop in pricing that excitement can generate. This sometimes leads to positive momentum that may continue to push the price upward in the short run.

Cons of Oversubscription

For most average investors, oversubscription ends up being a net negative. First, it’s rare for individual investors to be able to subscribe to an IPO. Typically that’s reserved for large institutional or high-net-worth investors. Then, by the time the average investor can buy the stock, higher pricing may make the IPO opportunity less attractive — with the risk of being overinflated.

If you’re unable to obtain an allocation at the original IPO price, it’s likely that secondary market prices for these securities may be substantially higher due to the high demand for these shares.

While this may not be a concern for long-term investors, this can pose a challenge if initial momentum causes the price of a new security to skyrocket beyond its reasonable fundamental value. This can cause the value of shares to tumble back to lower levels in subsequent months.

This is one of many reasons that retail investors should be cautious about IPO shares. They are a high-risk proposition at best.

Strategies to Maximize the Oversubscription Opportunity

Even if you were one of the lucky few to obtain early IPO shares, there isn’t much you can do to capitalize on an oversubscription opportunity.

If you receive shares from an oversubscribed IPO, you will want to consider both the long-term prospects of the company as well as the short-term prospects for its share price.

Depending on the company and your investment strategy, this will influence whether you intend to hold the security for the long-run or flip the shares for a quick profit.

If you’re unable to obtain an allocation during an IPO, it’s likely that the oversubscribed IPO would see its shares bid up in the secondary market. In this case, it’s not a bad strategy to wait a few weeks, or even months, after the initial IPO to see whether prices come back down — and gauge the company’s prospects from there.

In some instances, shares often decline a few months later after the expiration of the initial lockup period, once insiders are free to sell their shares. However this isn’t always the case, and can vary widely from company to company.

Seek Advice From a Professional

If you’re allocated shares from an IPO and are unsure of what to do with your new holdings, it might be worth consulting with a financial advisor or investment advisor to determine your next steps.

Financial professionals can help inform your decision making on how to proceed with an oversubscribed IPO. However, the final decision will ultimately be up to you and should be made within the context of your overall investment portfolio.

Do Your Research

Regardless of whether you’re able to gain access to the IPO, you should base your investment decisions on your own due diligence and fundamental analysis, i.e. a thorough review of a company’s disclosures, financial statements, and future prospects.

Reviewing the track record of company executives and the board of directors can offer insight into how competent the company’s management may be when it comes to executing on long-term strategies.

Thoroughly reading the prospectus of the new IPO shares can help you understand the core drivers of a firm’s business, its core customer base, key markets, and major risks it might face.

Additionally, there’s a multitude of research out there that follows your stock’s performance on both fundamental and technical grounds; these can go a long-way towards informing your investment actions for new IPOs.

The Takeaway

Oversubscriptions for hot IPOs can sometimes offer opportunities for investors who are able to secure allocation of shares; however, they can also turn into feeding frenzies for retail investors who wish to buy these securities on the secondary market.

The resulting media blitz, and (typically) wide swings in valuations, can easily end with inexperienced investors getting burned on the share price. In short: IPOs can be volatile. To protect yourself, it’s important to understand the drivers of IPO pricing and how it impacts demand.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What is the meaning of oversubscription?

Oversubscription, as it pertains to IPOs, refers to a supply and demand mismatch of the newly issued IPO shares. Either the price must adjust upward, the supply of shares issued must be increased, or a combination of the two must occur to meet investor demand.

In the event that the supply of IPO shares is unable to meet all investor orders, shares will typically be issued out to investors on a partial pro rata basis, or in proportion to each investor’s requested order size, subject to minimum block sizings.

In some instances, a lottery system may be implemented to maintain impartiality. Any unfilled orders will be rejected and cash returned to investors.

How can you calculate oversubscription?

At the basic level, IPO oversubscriptions are calculated as a ratio of the aggregate order size for IPO shares relative to the total number of IPO shares available to be distributed.

For example, if there are 1,000,000 shares of new stock available for an IPO pricing, but the underwriters receive an orderbook totaling 3,000,000 shares from investors, this IPO would be considered “3X oversubscribed.”

Photo credit: iStock/nensuria

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN0623089

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Sep
11
2023
Shorting an IPO: When Can You Do It?

Shorting an IPO: When Can You Do It?

By | Growing Wealth, invest, Investing | Comments Off on Shorting an IPO: When Can You Do It?

IPO stocks can be sold short once they are trading on public markets, known as the secondary market.

While traders can sell short IPO shares, investors allocated IPO shares may have to wait for a lock-up period to expire before they can sell.

Selling short an IPO on the listing day also has extra challenges you should know about. This article will cover how it works, when to do it, and any possible complications you might encounter in the process.

Key Points

•   It’s possible to short an IPO once it starts trading on the public market, with some limitations.

•   IPO stocks are heavily regulated and it can be difficult to borrow the shares needed to do a short sale.

•   Investors should do their due diligence before investing in any kind of stock, as there are no guarantees.

Can You Short an IPO?

IPO stocks can be sold short once they are trading on public markets, known as the secondary market. Shorting IPO shares on the listing day can be done, though there are some challenges.

Shorting a Stock

Shorting a stock is a strategy traders use to profit from a decline in the price of a stock. Any stock available for trading can be shorted. It is risky considering that the stock price can only go to zero — in which case a profit of 100% is realized (not including taxes and commissions). The risk is that the stock price increases. There is no theoretical limit to how high a share price can go.

A short sale happens when you borrow a stock and repay it in the future. The goal is to see the stock drop in value. When you sell short, you buy the shares, immediately sell them, then buy them back later. You want to buy the shares back at a price less than at which you lent them.

There is a fee for borrowing when selling shares short. That cost can be as low as 0.3% (on an annualized basis) for stocks with very little short interest, but it can soar to 30% for hot stocks with extremely high short interest. You might also be required to post collateral to sell short.

For example, let’s say you want to sell short shares of XYZ stock that currently trade at $100 per share. You enter an order to sell short the shares and you receive $100 per share. A month later, the stock price has dropped to $80, and you decide to close your short position by repurchasing the shares in the market. You buy back the shares for $80. Your profit on those stocks is $100 – $80 = $20.


💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

Challenges of Shorting an IPO

While shorting an IPO on listing day is allowed, there are practical limitations that could make it difficult.

A critical facet to shorting IPO shares is being able to borrow the shares from a brokerage firm. A broker needs an inventory of stock from which to lend and a company often only takes a small part of the company public, which can limit shorting opportunities. On IPO day, the two primary entities holding an inventory of shares are the underwriting banks and investors (both institutional and retail).

The IPO underwriters cannot lend shares for short sale for 30 days, per U.S. SEC rules. Investors can lend out their shares to investors seeking to short the IPO stock. That said, some shareholders might be unwilling to lend their shares.

IPO stocks are considered high-risk investments, and while some companies may present an opportunity for growth, there are no guarantees. Like investing in any other type of stock, it’s essential for investors to do their due diligence.

The Takeaway

You can short an IPO once it starts trading on the public market. But it’s worth remembering that shorting carries risk and there might be a high cost to borrow shares. In addition, IPO stocks are heavily regulated, which can make it difficult to borrow the shares needed to do a short sale.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

How soon can you short an IPO?

You can short an IPO once it begins trading on the public stock market. The IPO lock-up period typically lasts from 90 to 180 days. It is intended to prevent too many shares from flooding the market in the early days of the IPO. A high supply of shares could drive down the price of the IPO stock.

Can you sell an IPO immediately?

An investor who purchases shares on the secondary market can sell shares immediately. Investors who were allocated IPO shares have a lock-up period before they can sell. Learn more about selling an IPO.

How long until you can sell an IPO?

A company founder, a longtime employee holding company stock, or an investor allocated IPO shares must wait for the lock-up period to elapse before selling their shares. The IPO lock-up period might last anywhere from 90 to 180 days after the IPO. There might be multiple lock-up periods that end on different dates, too.

Photo credit: iStock/MarsBars

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN0623077

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Sep
11
2023
What is IPO Subscription Status?

What Is IPO Subscription Status?

By | Growing Wealth, invest, Investing | Comments Off on What Is IPO Subscription Status?

An IPO subscription status describes the position of a company’s initial public offering (or IPO), as it relates to how many committed investors it has prior to the actual IPO.

For example, an IPO may be “fully subscribed,” “undersubscribed,” or “oversubscribed.”

Many investors are intrigued by IPOs, because it’s an opportunity to put money into a relatively early-stage company that has room to grow over time. Some companies draw more investor interest than others, and the IPO’s subscription status is one way to gauge that, because investors sign up with the intent to purchase a certain number of shares.

A company’s IPO subscription status doesn’t guarantee that the stock will perform one way or another. It’s just a preliminary indicator that may help interested investors navigate a potentially risky investment move.

Key Points

•   An IPO subscription status describes the position of a company’s initial public offering (IPO) with respect to how many committed investors it has before the actual IPO.

•   An IPO is when a company offers shares for sale to members of the general public through a stock exchange.

•   Knowing an IPO’s subscription status can give investors an indication of how much demand there is for shares, and how an IPO stock may perform once it hits the exchanges.

•   Typically, only certain investors can participate in IPO bidding and subscribe to an IPO.

•   Individual investors may not have access to IPO subscriptions in the U.S., but research can help them find the right companies to invest in as they go public.

IPO Review

“IPO” is an acronym that stands for “initial public offering.” It represents the first time that a company offers shares for sale to members of the general public through a stock exchange. Prior to an IPO, you would not be able to find a company’s stock trading on an exchange such as the New York Stock Exchange, for example.

Prior to going through the IPO process, a company is private, and its investors usually include its founders, employees, and venture capitalists. A private company usually decides to go public to attract additional investment.

But it’s the tricky period before an IPO, when a company is still private, that many prospective investors look to make a move and get in early. This is when investors “subscribe” to an IPO, which means they’re agreeing or signaling their intent to buy a company’s stock prior to its IPO.

When the IPO executes, those investors may be able to purchase the number of shares to which they previously agreed. Typically, only certain investors can participate in IPO bidding and subscribe to an IPO.

💡 Quick Tip: Keen to invest in an initial public offering, or IPO? Be sure to check with your brokerage about what’s required. Typically IPO stock is available only to eligible investors.

IPO Subscription Status Defined

A company’s IPO subscription status refers to how investors have subscribed to a public issue. The goal of an IPO is to sell all of its shares — or, to reach an IPO subscription status of fully subscribed, and a valuation in line with its calculations for pricing its IPO.

In that event, all of a company’s shares are spoken for prior to hitting the exchanges, and any leftover shares won’t see their values reduced in order to attract buyers. Early investors looking to cash out after an IPO typically must wait for the lock-up period to expire before they can sell their shares.

Keep in mind that many IPO stocks in the U.S. are gobbled up by large, institutional investors involved with the IPO’s underwriter. But although the average retail investor is not typically included in an IPO roadshow, they may still be able to buy an IPO stock at its offering price.

Some brokerages have programs that allow qualified investors to request IPO stocks at their offering price, but there’s no guarantee those investors will actually get the shares.

Why IPO Subscription Status Matters

An IPO’s subscription status matters in that it can provide investors a sense of how an IPO stock may perform once it hits the exchanges. That’s pretty important, especially for traders or investors who are looking to earn a profit flipping IPO stocks.

Shows Demand of IPO Shares

Knowing an IPO’s subscription status can give investors an inkling as to how much demand there is for shares — if demand is high (an IPO is fully or oversubscribed), it’s a signal that an IPO stock may gain value after its market debut. But it’s not a guarantee.

Conversely, an undersubscribed IPO sends a signal that investors aren’t that interested. And when stocks do hit the exchanges, they may see a price reduction soon thereafter.


💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

The Takeaway

While individual investors may not have access to IPO subscriptions in the United States, you can still participate in the IPO market. The key is doing your research to find the right companies to invest in as they go public.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.


Invest with as little as $5 with a SoFi Active Investing account.

FAQ

How many times can an IPO be oversubscribed?

IPOs get oversubscribed frequently, which means that more investors want to buy shares than a company has available to issue. There isn’t really a limit as to how many times it can be oversubscribed, but depending on the category of investor, it’s not uncommon for IPOs to be oversubscribed dozens or even hundreds of times.

What is an IPO subscription rate?

IPO subscription rates are an estimate of how many bids are received for each investor category, divided by the number of shares allotted for each category by the company. This helps determine the level of participation among investors in each category.

Photo credit: iStock/SeventyFour

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN0623086

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