The IPO market is an excellent way for companies to turn public and raise money for their business operations. Buyers beware though. As this infographic shows, the little guy, or small investor should take caution when purchasing an IPO immediately after it’s initial offering.
In this example, the Facebook IPO was promoted by large Wall Street underwriters, yet at the same time was being sold by those same underwriters at percentages that were out of the ordinary. The shares of Facebook available were expanded, and the average investor was able to get in on the deal.
Shares of Facebook were initially priced at $38 on opening day. Just three months later, their market cap was cut in half. The stock price had cratered. The balance of supply and demand had obviously been out of line when the shares were originally priced. Why was the deal initially set so high and so many shares made available if the demand wasn’t there? Why were the preferred clients of underwriters warned about research analyst findings but not the general public?
Read the infographic below to decide yourself if the current IPO model should be kept or reformed: