We need to have a talk today about something concerning I’ve noticed in the investment community: IPO’s. Enjoy! Add me on Instagram: GPStephan
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So lets start here: Why do companies IPO in the first place?
Well, it just has to do with one thing: MONEY.
Companies of a large magnitude will need MONEY to continue growing and expanding. Sometimes money is used for research and development, sometimes it’s used to expand into other territories, or to potentially acquire other, smaller companies and add to its world dominating control.
See, usually, when a company is still REALLY small, it’ll first be funded either out of pocket - or more commonly, through angel investors. These are investors who put in their own money to help a company get off the ground, and in exchange for that, they get equity ownership in the business.
Then as the business starts getting some traction, it’ll need MORE money…sometimes hundreds of millions of dollars. Usually this is where PRIVATE MONEY INSTITUTIONS begin pouring in, because rarely can one single person just throw in $100m on something that may or may not make any money back.
But after awhile, as the company gets bigger and stronger, this type of venture capital gets harder and harder to get. So when private capital just becomes harder to raise, sometimes an IPO is the only next logical step. This means the business can sell ownership in their company PUBLICLY, so that ANYONE can go and buy a $50 share of Smash The Like Button Incorporated, and the company can raise as much money as it needs.
So why does a company IPO?
First, it’s common that a company in its growing stage will postpone making a profit for the sake of growth. They’ll often operate at a loss JUST to gain market traction, and then decide to profit later.
But…we now have the SECOND, NOT SO OBVIOUS reason companies need more money…
IN MY OPINION…sometimes the company will need money as a way to cash out while they still can, or just to keep the gravy train running. Or, a company might simply just be running out of money - unable to make profit - and they need more money to continue the ride until they can find a plan to one day make profit.
Why is an this a bad thing? Well, I don’t believe it’s all inherently bad, and I think there can be a lot of amazing advantages to doing an IPO…but what I DO see as a concern, is the recent valuations of BILLION DOLLAR COMPANIES that are unprofitable, and may never make a profit…but they go public, people buy them up, and then they drop in value as the hype wears down.
Now, here’s what I’m getting at: this is just a rant I needed to say, because I enjoy talking about this, but most importantly, it’s just to serve as a reminder that media attention, hype, and frenzy does not equate to a profitable investment. All of these things are temporary, and once the hysteria begins settling down, you’re left with the actual question: is this a company that’s worth what I’m paying for it, and will they EVER make money? And also think…is actually a GOOD deal for me to buy it based on the fundamentals of other, similar companies? If the answer is no…then don’t do it. If you can’t afford to lose money, don’t do it. End rant.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness @gmail.com
The YouTube Creator Academy:
Learn EXACTLY how to get your first 1000 subscribers on YouTube, rank videos on the front page of searches, grow your following, and turn that into another income source: https://bit.ly/2STxofv $100 OFF WITH CODE 100OFF
Merch: http://www.GrahamStephanStore.com/
My ENTIRE Camera and Recording Equipment:
https://www.amazon.com/shop/grahamstephan?listId=2TNWZ7RP1P1EB
So lets start here: Why do companies IPO in the first place?
Well, it just has to do with one thing: MONEY.
Companies of a large magnitude will need MONEY to continue growing and expanding. Sometimes money is used for research and development, sometimes it’s used to expand into other territories, or to potentially acquire other, smaller companies and add to its world dominating control.
See, usually, when a company is still REALLY small, it’ll first be funded either out of pocket - or more commonly, through angel investors. These are investors who put in their own money to help a company get off the ground, and in exchange for that, they get equity ownership in the business.
Then as the business starts getting some traction, it’ll need MORE money…sometimes hundreds of millions of dollars. Usually this is where PRIVATE MONEY INSTITUTIONS begin pouring in, because rarely can one single person just throw in $100m on something that may or may not make any money back.
But after awhile, as the company gets bigger and stronger, this type of venture capital gets harder and harder to get. So when private capital just becomes harder to raise, sometimes an IPO is the only next logical step. This means the business can sell ownership in their company PUBLICLY, so that ANYONE can go and buy a $50 share of Smash The Like Button Incorporated, and the company can raise as much money as it needs.
So why does a company IPO?
First, it’s common that a company in its growing stage will postpone making a profit for the sake of growth. They’ll often operate at a loss JUST to gain market traction, and then decide to profit later.
But…we now have the SECOND, NOT SO OBVIOUS reason companies need more money…
IN MY OPINION…sometimes the company will need money as a way to cash out while they still can, or just to keep the gravy train running. Or, a company might simply just be running out of money - unable to make profit - and they need more money to continue the ride until they can find a plan to one day make profit.
Why is an this a bad thing? Well, I don’t believe it’s all inherently bad, and I think there can be a lot of amazing advantages to doing an IPO…but what I DO see as a concern, is the recent valuations of BILLION DOLLAR COMPANIES that are unprofitable, and may never make a profit…but they go public, people buy them up, and then they drop in value as the hype wears down.
Now, here’s what I’m getting at: this is just a rant I needed to say, because I enjoy talking about this, but most importantly, it’s just to serve as a reminder that media attention, hype, and frenzy does not equate to a profitable investment. All of these things are temporary, and once the hysteria begins settling down, you’re left with the actual question: is this a company that’s worth what I’m paying for it, and will they EVER make money? And also think…is actually a GOOD deal for me to buy it based on the fundamentals of other, similar companies? If the answer is no…then don’t do it. If you can’t afford to lose money, don’t do it. End rant.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness @gmail.com
Can you enter in an IPO and sell it at the end of the first day? What about if Starlink goes public and makes an IPO? do you think this will be overpriced?
Umm Can anyone check if he ever invested in a IPO. How do we know he never has done that?
U can short uber easy around 49-50.
beyond meat is down 50 dollars a share since ipo, and down more from its top… cause it also went up way to fast for no reason . from 230 to 10 ..
Fiver went up way to quick, and now it trades at its ipo prices again .
wework trades at a few pennies now.
Thank you for the content!
Watching this today lol
Make your $ then get out 1st day 🚀🚀🚀
I love fivver I literally started a successful to shirt company using fivver artists
I’m so surprised to hear your strong opinions about Fiverr. I’ve had only great experiences there.
robinhood just added IPO's yesterday and now im here 😅
what about IPO ETFs? They seem to be profitable
Funny almost all of these stocks are trading way higher than their IPO’s today , especially FIVERR
Should have explained what IPO means
I used Fiverr for a cartoon digital caricature, for my boyfriend as a valentine's gift. She did an amazing job. If anyone wants to see what she did message me lol I gave her instructions, she followed perfectly.
Where did you buy stocks held for long-term profit?
The feel bad part hit a lot of us hahaha
If I purchase IPOs do I have to hold it? Could I sell it if I only buy a few? Would I get into trouble if I sell it? I’m new and I’m debating on purchasing a few.
@GrahamStephan you should do an IPO video this year for the hype with DASH and Airbnb? Would be interesting to see an analysis like this about the hype and see your thoughts as you don't buy the IPO's -> Thanks for the content
Does it matter if I tap the like button repeatedly Vs. Just liking it once?
During corona times Airbnb goes public and is about to whIPO you out!!! hahaha
How do you think about fiverr now?
4 projects and only liked 2 of them sooo 🤷♀️ mine is 50/50
Anyone have comments about where the Fundrise iPO (private pre-offering) seats in the spectrum of iPOs in their opinion?
Shame you didnt buy in fiverr at that point lol
I know you don’t like IPOs but would love your thoughts on the rocket mortgage IPO.
airbnb
What do you think about Albertsons IPO this week?
If you do alot and I mean alot of research on a company. Following suggestions like you said to make sure they are profitable before the offering of the IPO, only then, the investment might be worth it. I'm not sure what the percentage is but I believe 95% of IPOs are a failure.
Hey G! you called it…..5 months later and WeWork goes from a valuation of $47B to $5B………..who knew………Graham did.
Good foresight, Graham. I agreed back then and still do today. Good channel. Keep it up and thank you
Fundrise is offering me an IPO (for a limited time lol). Think I'll pass after watching this, I knew Graham had the answer.
Remember when beyond mear joined the market. It went up like crazy and so in very short term you could buy and sell with a BIG profit.