Money 101  >  Explainers

What is an IPO or initial public offering?

POSTED ON October 21, 2019

An IPO, or Initial Public Offering, is the first time a company publicly offers shares of its ownership for sale to individuals or other institutions. Companies usually decide to go public when they are looking for capital to pay for additional operations or expansion, while expecting that the money the IPO will bring in will be used to improve their business.

To hold an IPO, a company works with an underwriter (usually an investment bank), which researches the company, markets the upcoming IPO, and issues and sells stock.

The underwriter is also mostly responsible for determining the price of each share. This is based on many factors, including how much the company is actually worth (including its assets), how much its business can grow, its position and track record in its industry, the potential of the industry to grow, and the reputation of the underwriter.

Not every company can choose to go public. They must first meet the various requirements of the Securities and Exchange Commission (SEC) and the Philippine Stock Exchange before offering shares.

Buying shares during an IPO is a great way to own part of a company, and can be profitable if the company performs well. Remember, though, that there is still a risk that the stock will go down in value after some time. (See also: How to invest in an IPO).