What is an IPO: Initial Public Offering Explained

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What is an IPO?

An initial public offering is the first offer of a company’s stock to the public. Most companies are first private and then choose to "go public" by offering their shares to the public by auctioning them off on the stock market. A company will want to make its shares public so that it can receive cash. After investors buy the first offered shares, the company is the beneficiary and receives the cash to use it as a way to grow. Depending on the company, millions, even billions of dollars can be raised from the public by offering stock to be bought. This year, in 2020, DoorDash (DASH) took their company public and shares were trading at $190 per share. That gave the company a valuation of $70 billion within hours! Similarly, Airbnb (ABNB) took their company public as well and raised a value of $85 billion within a day as share prices climbed as high as $146.

Should IPOs be bought? Yes and no. Facebook was an IPO. As well as Amazon, Apple, and Google. But not all IPOs are created equally and make it big. It is possible for a company to take its stock public and for shares to tumble and never reach IPO prices again. IPOs carry a lot of risk because of the hype that's built up around them and investors should do their due diligence before investing into them.

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