Worth: estimated around 1 Billion

IPO date: Jan. 30, 2020

IPO price: $14

Worth: estimated around 2.1 Billion

IPO valuation: $1.7 billion

EOY Price: $43.26

Fundraising

The most often cited advantage of an initial public offering is money. In 2016, the median proceeds received from an initial public offering were $94.5 million, and many offerings bring in hundreds of millions of dollars. For example, in 2016, the largest IPO—ZTO Express—netted $1.4 billion. The proceeds from an IPO provide ample justification for many companies to go public even without looking at the other benefits, especially considering the many investment opportunities available because of the new capital. These funds can benefit a growing company in countless ways. Companies may use an initial public offering to finance research and development, hire new employees, build buildings, reduce debt, fund capital expenditure, acquire new technology or other companies, or bankroll any number of other possibilities. The money provided by an IPO is significant and can transform the growth trajectory of a company.

Exit Opportunity

Every company has stakeholders who have contributed significant amounts of time, money, and resources with the hopes of creating a successful company. These founders and investors often go for years without seeing any significant financial return on their contributions. An initial public offering is a significant exit opportunity for stakeholders, whereby they can potentially receive massive amounts of money, or, at the very least, liquefy the capital they currently have tied up in the company. As stated in the previous paragraph, initial public offerings often raise nearly $100 million (or even more), which makes them very attractive to founders and investors who often feel that it is time to receive financial compensation for years of “sweat equity.” It is, however, important to note that for founders and investors to receive liquidity from an IPO, they will have to sell their shares of the now-public company on secondary exchange (e.g., New York Stock Exchange). Shareholders do not immediately receive liquidity from the proceeds of an IPO.

Publicity And Credibility

If a company hopes to continue to grow, it will need increased exposure to potential customers who know about and trust its products; an IPO can provide this exposure as it thrusts a company into the public spotlight. Analysts around the world report on every initial public offering to help their clients know whether to invest and many news agencies bring attention to different companies that are going public. Not only do companies receive a great deal of attention when they decide to go public, but they also receive credibility. A company must go through intense scrutiny to ensure what they are reporting about themselves to complete an offering. This scrutiny, combined with many individuals’ tendencies to trust public companies more, can lead to increased credibility for a company and its products.

Reduced Overall Cost Of Capital

A major obstacle for any company, but especially younger private companies, is their cost of capital. Before an IPO, companies often have to pay higher interest rates to receive loans from banks or give up ownership to receive funds from investors. An IPO can lessen the difficulty of receiving additional capital significantly. Before a company can even begin its formal IPO preparation process, it must be audited according to PCAOB standards; this audit is normally more scrutinizing than any prior audits and fosters greater confidence that what a company is reporting is accurate. This increased assurance will likely result in lower interest rates on loans received from banks, as the company is perceived as being less risky. On top of lower interest rates, once a company is public, it can raise additional capital through subsequent offerings on the stock exchange, which is usually easier than raising capital through a private funding round.

Stock As A Means Of Payment

Being a public company also allows for the use of publicly-traded stock as a means of payment. While a private company has the ability to use its stock as a form of payment, the private stock is only valuable if a favorable exit opportunity arises. On the other hand, the public stock is essentially a form of currency that can be bought and sold at a market price at any moment, which can be helpful when compensating employees and acquiring other businesses. For a company to thrive, it must hire the right employees. The ability to pay employees with stock or offer stock options allows a company to be competitive when trying to hire top-tier talent, even if the base monetary salary is lower than what competitors are offering. Additionally, acquisitions are often an important way for companies to continue to grow and stay relevant. However, acquiring other companies is normally very expensive. When a company is public, it has the option to issue shares of its stock as a means of payment, rather than using millions of dollars of cash.