The Hype of IPO
By Akbar Muhammad
An IPO (initial public offering) is when a private company sells shares to the public for the first time. It feels exciting: new ticker, big headlines, friends texting “are you buying?” But the price action around IPO day often looks very different from the returns a year or two later. Prices can jump, then sink, then jump again before lunch. But the truth is simple: what happens in the first few days of trading often tells you more about supply, hype, and nerves than it does about the business you’re actually buying.
What Happens on IPO Day
Before trading starts, the company and its bankers agree on an offering price based on meetings with large investors. That number is not a verdict on long-term value; it’s a place to begin. When the bell rings, the public finally trades those shares. If the “float” (the number of shares available) is small and curiosity is high, the price can sprint upward because too many buyers are squeezing through a narrow door. Later, when early traders take profits or more sellers appear, the price can fall just as quickly. You’re watching price discovery happen in real time, with bright lights and loud music.
A big pop mostly measures excitement and scarcity, not durable profits. After the celebration settles, the market starts asking harder questions: Are sales growing at a healthy pace? Are losses shrinking? Do customers stick around? Can the company reach steady profits without constantly raising cash?
Stages of IPO
Think of an IPO as moving through three stages.
Stage 1: Hype. For a few days or weeks, the story is all headlines and curiosity. The float is small, everyone wants a piece, and the price can sprint or stumble for reasons that have little to do with the business.
Stage 2: Insider supply. As the lock-up window nears its end, early employees and investors are finally allowed to sell. More shares hit the market. Even good companies can feel heavy here because supply rises faster than demand.
Stage 3: Fundamentals. The noise fades and the reports stack up. Now it’s revenue, margins, cash flow, and valuation. This stage lasts the longest and decides the outcome. Over time, prices line up with the math.
Once the headlines cool off, you’re left with the basics. Does each sale move the business closer to profit, or just pile on costs? Are margins trending up? Will they need to raise cash and dilute everyone? Can they keep rivals at bay? Then there’s the macro: higher rates, or just more fear, make investors demand a discount on future profits. That’s how a solid business can tread water if it has multiple contracts.
The Quiet Period
Right after the IPO, the banks that ran the deal have to keep quiet for a bit. When that quiet period ends, a bunch of analyst notes can hit on the same day, and the stock can wiggle up or down just from that rush of opinions. A few months later, you might see a secondary offering, insiders or the company selling more shares. That’s extra supply. If there aren’t enough new buyers, it can put a lid on the price for a while. None of this means the business suddenly changed; it’s mostly the near-term tug-of-war between how many people want to buy and how many want to sell.
A Simple Way to Think About IPOs
Early on, the market is really asking, “How excited are people, and how few shares exist?” Later, it asks, “How good is this business, really, and is the current price fair for that quality?” The first question moves a stock for days or weeks. The second question shapes the next few years. If you keep that split in mind, the wild opening moments feel less like chaos and more like a temporary costume the stock wears before settling into its real role.
IPO day is fun to watch, but it isn’t the whole story. Early moves are mostly excitement and a small supply of shares; a few months later, more stock hits the market and prices can feel heavy. Over time, what matters is whether the business keeps growing sales, improves margins, and turns that into steady cash. You don’t need to chase the first jump, let a couple of earnings roll in and ask if the price still makes sense.
