Understanding IPOs: A Complete Guide from Initial Public Offering to Investment Decision

What Does IPO Really Mean?

The frequently appearing term IPO in financial media stands for “Initial Public Offering.” In simple terms, when a private company decides to sell shares to the public, it begins the IPO process.

Once a company reaches a certain stage of growth, founders’ investments often become insufficient. At this point, the company needs external financing to maintain growth momentum. The core significance of an IPO is transforming a private enterprise into a publicly traded company—helping the company raise substantial funds, repay debts, expand business, and allowing early investors to realize gains while giving ordinary investors the opportunity to participate in high-quality enterprises.

In short, an IPO is the process by which a private company goes public by issuing shares to the public. This process marks the shift of ownership from private to transparent, from a small circle to the mass market.

Opportunities and Traps of Investing in New Shares

( Why IPOs Attract Investors

Optimized Entry Cost: When subscribing to shares during a company’s IPO, investors usually get the lowest price available in the market. Missing the initial offering period often results in rapid price increases afterward, making re-entry more costly. Many investors see IPOs as a golden window for low-cost entry into high-quality companies based on this logic.

Significant Profit Potential: Most companies choose to initiate IPOs when market sentiment is optimistic, creating a favorable environment for stock price increases. Compared to buying on the secondary market, IPO subscribers can more quickly share in the company’s growth benefits.

Relatively Balanced Information Disclosure: In the IPO prospectus, all investors receive the same information sources. The information advantage of large institutional investors is significantly reduced, creating a relatively fair competitive environment for retail investors.

) Hidden Risks to Watch Out For

Liquidity Dilemmas: If the chosen company performs poorly, large capital outflows may leave ordinary investors unable to exit in time, ultimately forcing them to suffer losses.

Pricing Traps: All positive news about the company is fully reflected in the IPO pricing, meaning short-term stock price growth potential may be limited. In other words, investors might be buying “expected stocks” rather than “growth stocks.”

Hong Kong Stock Listing Thresholds and Procedures

Overview of Approval Conditions

For main board listing, meeting any of the following conditions allows submission of an application:

Profit-Oriented: Profit of at least HKD 20 million in the past 12 months, cumulative profit over HKD 30 million in the previous two years, and a profit scale of HKD 500 million at listing.

Revenue-Based: Valuation of no less than HKD 4 billion at listing, with revenue of at least HKD 500 million in the most recent year.

Cash Flow Stability: Listing valuation starting from HKD 2 billion, with revenue of HKD 500 million in the most recent year, and cumulative operating cash flow over the past three years exceeding HKD 100 million.

Steps in the Listing Process

Companies need to first assemble an intermediary team, including sponsors, accountants, lawyers, and other professionals, to conduct comprehensive due diligence. Simultaneously, work on asset verification, financial audits, and drafting the prospectus.

Next, they reorganize business and equity structures, adjust governance to meet listing standards, and submit applications to the China Securities Regulatory Commission and HKEX. The prospectus is published on the HKEX website, and responses are provided to regulatory inquiries.

Roadshows and pricing stages include non-deal roadshows, investor briefings, international roadshows, etc. After determining a reasonable price, the company launches a public offering in Hong Kong. Once everything is completed, the company officially begins trading.

US Stock Listing Requirements and Procedures

NYSE### NYSE### Standards

Companies must meet any of the following thresholds:

Profit Indicator: Cumulative pre-tax net profit of at least USD 100 million over the past three years, with each of the last two years exceeding USD 25 million.

Market Cap and Cash Flow: Global market capitalization over USD 500 million, revenue of at least USD 100 million in the past 12 months, and total cash flow over USD 100 million in three years, with each of the last two years having cash flow no less than USD 25 million.

Market Cap Advantage: Global valuation of over USD 750 million, with annual revenue in the last two years not less than USD 75 million.

( NASDAQ) NASDAQ### Standards

For the national market, one of the following conditions can be chosen:

• Any two of the past year or three-year period with recurring pre-tax profit of USD 1 million, shareholder equity over USD 15 million, public float market value over USD 8 million, and at least three market makers.

• Shareholder equity over USD 30 million and operating for at least two years, public float market value over USD 18 million, and at least three market makers.

• Listed securities market value over USD 75 million, public float over USD 20 million, and at least four market makers.

• Any two of the past year or three-year period with assets plus revenue totaling USD 75 million, public float over USD 20 million, and at least four market makers.

( Specific Steps for US Stock Listing

Companies first sign agreements with investment banks as underwriters, jointly submitting registration statements containing financial data and business plans to the U.S. Securities and Exchange Commission)SEC###.

Within two weeks before listing, conduct a nationwide roadshow to promote the IPO to potential investors. The company and underwriters agree on the offering price and file the registration statement with the SEC for approval.

Distribute the prospectus and application forms to the public within the scheduled date, and the SEC publishes the IPO timetable. After the final price is set, underwriters and the company determine allocations for each investor, and the stock begins trading on the market.

Practical Investment Recommendations

Participation in the IPO market continues to rise, but successful IPO investing requires rationality and caution. Investors should make decisions based on a thorough understanding of the company’s fundamentals, financial status, and industry prospects, rather than blindly chasing short-term gains.

It is recommended to adopt a diversified investment strategy, hold high-quality assets long-term, and adjust positions flexibly according to market changes. While IPOs offer cost advantages, not all new stocks are worth chasing; selecting companies with genuine growth potential and solid fundamentals is the best approach.