Financial Freedom 101

An IPO stands for Initial Public Offering. Its when a private corporation starts offering shares to the public in stock issuance. It allows a company to raise capital from public investors. The transition from a private to a public company can be an essential time for private investors to realize gains from their investment fully. It typically includes share premiums for current private investors. When a company goes public, it can raise the capital it needs by selling shares, but it must comply with the SEC strict rules of reporting guidelines.

The first company to ever go public was the Dutch East India Company back in the 1600s. Since then, companies have used IPOs as a way to raise capital to improve their businesses further. To start, a registration statement must be filed with the SEC. That statement contains vital information about the issuing company, including financial and ownership details. Once the SEC approves the IPO, a date is set. The general public can not invest in a company pre-IPO, a company is private with a few shareholders, typically the founders and sometimes professional investors.

Why Go Public?

When a company goes public, it serves as a way for them to raise capital to fund current operations and business projects. Some IPOs fly to the moon, and some get bottomed out by the market and could never see their stock IPO price again. The typical IPO raises $100-200 million. When the company raises money through the sale of stock, they have better financing options.

When a company goes public, it is much easier to borrow money than it would be if your company were private because when your public, the average investor is allowed to see public disclosures and accounting oversights of the public company. Many websites have this type of information on public companies.

An advantage of going public is an increased public awareness of the company because IPOs often generate publicity by making their products known to a new group of potential customers. This leads to an increase in market share for the company by having the public invest. Taking a company public reduces the overall cost of capital and gives the company a more solid standing when negotiating interest rates with banks. This would reduce interest costs on existing debt the company might have.

Advantages Of Taking A Company Public

• Companies can offer securities by being able to buy out other companies.
• Stock and stock options programs can be provided to employees, which will make them work their ass off to grow their company and increase its stock price.
• Market exposure – having a company’s stock listed on an exchange could attract hedge funds, mutual funds, financial advisors, and public investors.
• Free advertising- the filing and registration fee for most significant exchanges includes a form of complimentary advertising. The company’s stock will be associated with the exchange their stock is traded on, which will lead to more investors seeing a companies name and wanting to invest.

IPO Success

IPOs are sometimes very successful at other times, not so much. The best performing IPOs tend to be for small, fast-growing, under-the-radar companies. When IPOs open up and go to the moon, it usually means that it will succeed for many years to come. The Marketing company “HubSpot” spiked 32% the day it went public, in only 12 months it doubled in value, and five years later it’s up 731% compared to the day it went public.

Another example is beyond meat (BYND); they went public at $25, and a year later, they are trading at $125. Beyond the first trading day, they soared 170%! Beyond Meat went on to gain 859% in under three months, ranking it among the greatest IPOs of all time. Since the year 2000, the average opening-day return of an IPO is 14%. Not all IPOs are a success; many also fail, as an investor now, I would not buy a company the day they IPO unless they are profitable or on the path to profitability. Airbnb IPO is coming out soon, and I and chopper can’t wait to start digging into their business.

Disadvantages Of Going Public

• Going public is an expensive, time-consuming process. A corporation must put its affairs in order and prepare reports and disclosures that comply with U.S. Securities and Exchange Commission regulations concerning initial public offerings.
• Going public is the process of selling ownership of a part of your company to strangers. Every bit of ownership that you sell comes out of a current owner’s equity position.
• Once going, public management gets hectic. As a manager, you can no longer make decisions autonomously. Even if you are a majority shareholder, the minority shareholders have a say in how the company is managed.
• Going public places your company under the supervision of the SEC or state regulatory agencies that regulate public corporations and the stock exchange that has agreed to list the company’s stock. (unless its a Chinese company they are crooks)
• Increased liability By law, a public corporation has an obligation to its shareholders to maximize shareholder profits and disclose operational information. A corporation and management can be sued for making mistakes and feeding the public wrong info. for example, Luckin Coffee cooked their books and got delisted off the NY stock exchange… (Chinese crooks)

IPO Failures

Uber’s IPO is one of the biggest IPOs since Facebook (FB) went public in 2012. Me and choppers first IPO was Uber. If you look at Uber’s chart, we got rocked. Uber is still way overvalued compared to book value, and pay all there drivers with investor capital raised through investor capital. The day of Uber’s IPO, the drivers were picketing outside the exchange as Uber rang the opening bell, that opening bell that Uber’s founders were not even allowed to get near. Uber is not a profitable company and burns millions of dollars in cash each quarter. Uber’s business “hit a wall” just before its IPO, the FT notes, with 20% quarter-over-quarter growth rates falling to as low as 1% in recent quarters.

In Uber’s IPO, the documents showed it lost $1 billion on $3 billion in sales in just the past three months. Uber has been around for a decade and still is nowhere near profitability. Every ride costs Uber money. It’s losing roughly $1.20 on every trip. As a company, Uber is an excellent service and offers excellent stuff at the consumer level, but right at the start of their IPO, they instantly lost money and have been in a spiral downfall sense. Uber IPOED at $44 and now is trading around $32. During the COVID crash, we saw Uber hit $12! I do not see this company ever being a substantial investment right now and in the future. Uber was a failure the minute they IPOED, and me and chopper should have avoided it at all costs.