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IPOs have dominated headlines lately, as a number of high-profile private companies announced they will become publicly traded firms.
Much of the frenzy has focused on Elon Musk’s rocket-maker SpaceX, which could be a record-breaking IPO when it starts trading on the Nasdaq on Friday. There’s also tons of anticipation around artificial intelligence startups Anthropic and OpenAI — both have plans to go public in the months ahead.
The hype is hard to ignore — but could these IPOs fall flat? CBC News looked into how a company goes public, who benefits and whether buying in is a sure bet for investors.
How do IPOs work?
An IPO, or initial public offering, is the first time a company sells its shares to the public on a stock exchange. The process is also known as “going public.” Selling shares helps the company raise cash to grow its business.
IPOs let everyday people who are not professional traders buy shares — they’re sometimes called individual or retail investors. Anyone holding shares owns a piece of that business and could face financial gains or losses depending on the company’s performance.
Why are these IPOs getting so much attention?
The sheer size of these IPOs is unprecedented. SpaceX has set its price at $135 US a share, which would value the company at $1.8 trillion US. If the market debut goes as expected, it will be the biggest IPO ever. Anthropic and OpenAI are also looking at valuations of nearly $1 trillion US each.
These companies offer exposure to rockets, satellites and artificial intelligence. The massive demand for these IPOs has been fuelled by investors who believe these technologies could transform the world economy.
Despite that enthusiasm, some analysts have raised red flags.
Research firm Morningstar suggested that SpaceX is “significantly overvalued” and valued SpaceX at $63 US per share, a 53 per cent discount to the coming IPO’s offering price. In its own IPO paperwork, SpaceX wrote it has “a history of net losses and may not achieve profitability in the future.”
Stephen Foerster, professor of finance at the Ivey Business School at Western University in London, Ont., says Musk controls more than 80 per cent of SpaceX voting power, so he will be fully in charge of operations and strategy.
“It will be unusual in terms of not all the regular governance protections being put in place. So you’re really betting on Elon Musk.”
When a company goes public, who benefits?
Founders are the primary winners. Musk holds almost half of SpaceX shares — when the company goes public,…
Read More: SpaceX kicks off wave of monster IPOs: What to know about companies going
