In stock-market investing, what is an initial public offering?

In stock-market investing, an initial public offering is a company’s first public share sale.

An IPO changes a privately held company into a publicly traded one by offering shares to public investors. Before the offering, the company and its advisers prepare regulatory filings, describe the business and risks, and determine how many shares to sell and at what price. Investment banks commonly help underwrite and distribute the offering.

After pricing, the shares begin trading on a stock exchange or other public market. The IPO price and the later opening-market price can differ because demand may change once broader trading begins. An IPO can raise capital for expansion, debt reduction, acquisitions, or other corporate purposes.

An IPO is not the same as every later share sale. A seasoned offering sells additional shares after a company is already public, while a direct listing allows existing shares to begin trading without the traditional underwritten IPO structure. IPO investing also carries business and price risk.