Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Upcoming IPOs

Initial public offerings are a way for private companies to raise more money from the public, by offering their shares to the public on the stock market. This is an important time for private companies to become more widely available and allow investment access to the public.

Upcoming IPOs can benefit private investors in particular. This is because many IPO companies will include share premiums for their existing investors, so this can result in potential profits. Existing shareholders of a private company will likely include family, friends, and professional investors such as venture capitalists. These private equity investors help to finance companies with high growth potential in exchange for a stake in their equity.

What does IPO stand for?

An initial public offering (IPO) happens when shares of a previously private company are offered to the public on a stock exchange. This is part of a new stock issuance. A company that is planning an IPO will select underwriters to manage their financial risk, and chooses a stock exchange in which to feature their newly public shares. When the company goes public, the private shareholders’ shares will value at the same price as the public share. These are usually a higher value and therefore, they will profit from the relative returns that were expected. 

In general, companies can register for an upcoming IPO after reaching a market capitalisation of $1 billion, which is the same for a ‘unicorn company’. However, as long as the business can meet the listing requirements for a specific market and prove their potential for future profit, they can also qualify for an IPO.

Secondary offering after IPO

One of the advantages of IPOs is the ability to raise even more capital in the future. A secondary offering after the initial public offering releases the sale of new stock on the exchange, in order to raise more funds for operations. This, in turn, dilutes the percentage of individual ownership for the original investors, which can cause negative investor sentiment. This will also reduce the quality of important company fundamentals, such as company earnings and P/E ratios for the share price.

How to buy pre-IPO stock

Before the IPO occurs, there is sometimes a private sale of a company’s shares before the stock is listed on the chosen exchange. These buyers are usually venture capitalists, as mentioned above, as well as private equity investors, hedge funds and other private investors that aim to profit from a stake in the company in the future. They will also be given a discount from the upcoming IPO price to attract a larger number of investors.

Read more information about how to trade stocks here.

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Upcoming IPOs to watch

  • Airbnb. Although it has a relatively large online following that has grown substantially over recent years, Airbnb is still private and not available on the stock market. The company has acquired some other rental and holiday platforms recently, and in April 2020, Airbnb raised $2bn for funding. Therefore, financial analysts are predicting that it should be ready to announce a future IPO before the end of 2020.
  • Snowflake. This software start-up’s products have been in high demand over the past year, with investors such as Salesforce taking stakes in the company. Their cloud data and analytics services are set to rival tech giants such as Google, Oracle and Microsoft, so Snowflake upcoming IPO is hugely anticipated.
  • DoubleDown Interactive. Although this company has been among the top 20 highest mobile game publishers since 2015 on the Apple Store, the South Korean company is still private. It originally planned to go public in June 2020 but scaled back the offering size and postponed the IPO, so investors are eagerly awaiting its future IPO announcement.
  • Vertex. This company has been private for over 40 years and finally announced a future IPO, as a provider of tax solutions for global businesses, including sales, consumer and value added tax. Vertex suffered losses in 2018 but made a comeback with a profit of $31 million, with blue-chip underwriters including Morgan Stanley and Goldman Sachs.
  • DoorDash. A rival of Deliveroo and Uber Eats, this company is a food delivery service that has rocketed during the Covid-19 pandemic, due to lockdown restricting the ability to dine out at a restaurant. DoorDash filed its OPI form in February 2020, so investors are waiting on an update for the year.

IPO under-pricing reasons

An upcoming IPO’s share price is speculated before it is actually announced, in relation to its overall revenue and income. However, an IPO can be under-priced if its sponsors cannot predict the outcome of the stock, and if it is well received. This may be due to a lack of public information about the company, so the stock price will emerge higher than the predicted value.

Another theory is that some companies under-price their IPO below market value in order to attract a wider number of investors. Some investors choose to buy stakes in a company that they can afford, rather than having a genuine interest or hope that that specific company will succeed. This way, it ensures that investors will buy up all the shares of the company’s IPO, rather than having some left over.

How to trade IPO stock

A number of trading platforms specialise in pre and upcoming IPOs, where you can browse and choose a stock to invest in, before its future IPO is carried out. Once the company is public, however, you can trade it like any other share in the stock market, using financial derivatives, such as futures, forwards and options contracts.

After a company has passed the IPO process and listed its shares on a stock exchange, it will be available for public trading. With us, traders can speculate on the price movements of the underlying share through spread betting and contracts for difference (CFDs), which are both derivative products. These products allow you to trade on price movements without taking ownership of the asset, so you can either go long or short on your position.

Private companies with an upcoming IPO could include rivals to some of the largest companies in the world, within the technology, renewable energy, e-commerce, and healthcare industries, at the very least.

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IPO investing platform

To trade on the price movements of an upcoming IPO stock after it has passed the process, our online trading platform, Next Generation, offers spread betting and CFD trading on more than 8500 stocks and ETFs. It is simple and easy to register for a live account and start trading the share market now.

IPO news

​You can also keep up to date with the latest news and analysis for the stock market, as we keep our online platform updated with daily reports and predictions from our professional market analysts. Alternatively, if you would like to see data from external news providers, our news and insights section offers fundamental analysis stock reports from Morningstar and live updates on the share market from Reuters.

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Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

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