1. Initial Public Offerings
IPOs
Initial Public Offerings

2. Public Offerings
Initial Public Offering: The first time that a firm offers shares to the Public
Seasoned Offering: The issue of additional shares by a firm already owned and traded by the public

3. SEC Registration
When a firm intends to sell its shares to the public for the first time it must file a Registration Statement with the Securities & Exchange Commission (SEC)

4. SEC Registration
The registration statement contains information about the firm, its management, and key provisions and features of the security being offered. The registration statement must also include financial statements certified by an independent public accountant.

5. SEC Registration
When the SEC rules that the required information has been properly disclosed then the Registration Statement becomes "effective".

6. Red Herring
The Red Herring is a preliminary Prospectus. It states on the cover page in red ink that the Registration Statement is not yet effective, and may be circulated during the approval period.

7. Red Herring
Once approval is received from the SEC, the underwriter sets an initial public offer date and, based on information gathered, on the day before the offering, the underwriters sets the offer price.

8. ?
The difficulty with an IPO is that there is no real information on which to base the initial price.

9. I may know all about a company....

10. ... but I don’t know exactly how the market will value that information.

11. I know how the market values IBM because I can look it up on the New York Stock Exchange.
But the price of an IPO is an educated guess.

12. Sometimes market interest is over-estimated and the price drifts down to its real value ...

13. Pixar

14. Sometimes market interest is under-estimated and investors make an incredible return in just the first few days of trading
Netscape opened in August 1995 at $28 and in one day climbed to $71

15. Netscape Communications

16. But studies show that, over the long run, IPOs under-perform stocks of similar companies that are not initial Public Offerings.

17. The End