What Is Post-IPO?
"Post-IPO" refers to the period after a company's initial public offering of stock, which is its debut in the equity financial markets. Typically, during these months the banks that were responsible for underwriting an IPO, or bringing that stock to the market, and other large investors are prohibited from selling their shares in the company. The post-IPO time sets the tone for a new issue, and if a stock falters, additional selling pressure from early investors would only make things worse.
There is often an air of excitement surrounding a new issue, and companies often have their best trading days on the first session for that stock. Investors generally place a high demand on IPOs because of the profits that can be earned by reselling the stock. To prevent some of the early investors, who are often institutional investors, from selling shares immediately after the IPO date and therefore adding more supply to the market, early investors agree to a post-IPO lockup period during which shares must be retained.
A typical post-IPO lockup period lasts for six months, but those restrictions are increasingly being relaxed, according to an article in "The Wall Street Journal." An IPO's underwriters, or banks that are responsible for selling shares of a new issue, can include language to a company's IPO regulatory filing that indicates that early selling might be allowed. A company that has a particularly strong maiden trading session might choose to permit this. In September 2012, Internet marketing company ExactTarget loosened its post-IPO selling restrictions by one week, and the stock advanced 1.1 percent that day.
The post-IPO period can often be a honeymoon of sorts for new stocks, as investors race to become part of a company's expansion plans. But trading does not always unfold as a company would hope. In 2012, online social-networking giant Facebook listed its shares in a highly anticipated IPO. Glitches interfered with trading in the first session, and things only got worse. One original IPO investor sold approximately $400 million worth of shares post-IPO when shares were trading at about half their IPO value, according to "The Wall Street Journal."
It's difficult for the average investor to participate in an IPO, given the limited number of shares offered and the priority given to institutions and certain investors. Nonetheless, after the initial trading day, or post-IPO, investors can still earn generous profits from a new stock. For instance, IPOs in 2004 produced returns of 28 percent, with more than half of that in the post-IPO period, according to "Forbes."
Geri Terzo is a business writer with more than 15 years of experience on Wall Street. Throughout her career, she has contributed to the two major cable business networks in segment production and chief-booking capacities and has reported for several major trade publications including "IDD Magazine," "Infrastructure Investor" and MandateWire of the "Financial Times." She works as a journalist who has contributed to The Motley Fool and InvestorPlace. Terzo is a graduate of Campbell University, where she earned a Bachelor of Arts in mass communication.