What is IPO (Initial Public Offering)?

An IPO is the first time a private company sells shares to the public on a stock exchange, raising capital, providing liquidity to early investors and subjecting itself to listing-disclosure rules going forward.

An IPO is led by investment banks (underwriters) who price the offer, allocate shares to institutional investors and stabilise the share price post-listing. The Swiss exchange is SIX; Germany uses Xetra/Frankfurt; France, Italy and the Netherlands use Euronext. Notable Swiss IPOs include Galderma (2024) at CHF 53/share with valuation around CHF 12bn, and Sandoz (2023) which spun off from Novartis.

IPOs are statistically poor investments for retail buyers. Academic research (Ritter, Loughran) shows that the average IPO underperforms broad market indices by 20–30% over three years. Reasons: the company sells when valuation is attractive to them (not to you), insiders unload at the lock-up expiry six months later, and the hype usually fades.

Retail investors typically cannot access IPO allocations at the offer price; they buy in the secondary market on day one, often at a 10–30% pop. A more disciplined approach is to wait six months past the lock-up expiry, by which time founder selling has cleared and a normal price discovery has occurred.

Example

Galderma IPO at CHF 53/share in March 2024 raised CHF 2.3bn at a valuation of CHF 12.4bn. Retail investor who buys at first-day close CHF 61 (a 15% pop) and holds for one year: stock trades at CHF 99 — a 62% gain, an unusually successful Swiss IPO.

Related terms

Stock (Share / Equity)

A stock is a unit of ownership in a publicly listed company that entitles the holder to a proportional claim on the firm's assets and future profits, traded on exchanges like SIX, Xetra, Euronext or NYSE.

Market Capitalisation

Market capitalisation, or market cap, is the total market value of a company's outstanding shares, calculated as share price times shares outstanding; the standard measure of a company's size in equity markets.

P/E Ratio (Price-to-Earnings)

The price-to-earnings ratio divides a stock's market price by its earnings per share, expressing how many years of current profits an investor is paying for one share — the most-cited valuation metric in equity analysis.

Short Selling

Short selling is a strategy that profits from a fall in a security's price by borrowing shares from a broker, selling them at the current price, and buying them back later at a lower price to return to the lender — the inverse of conventional 'going long'.

Frequently asked questions

Can retail investors buy at the IPO price?+

Rarely in Europe; allocations go mostly to institutions. Retail typically buys at first-day open.

Are IPOs good investments?+

On average no — underperformance of 20–30% over three years is well documented.

What is a lock-up period?+

Typically 180 days during which insiders cannot sell; expiry often triggers downward price pressure.