This year there are some exciting opportunities (and risks) as a huge number of companies join American stock exchanges.
As of September 28, a record-shattering 761 Initial Public Offerings (IPOs) were offered on American stock exchanges in 2021, a near 200 percent increase from the same period a year prior. Roughly 100 more IPOs were expected by the end of the year. To put that in perspective, there were just 232 IPOs in 2019 and 255 in 2018.
An Initial Public Offering is the first time a corporation sells its share on a stock exchange. This allows the general public to buy stocks through a brokerage, such as Robinhood or E*TRADE.
Why should you care? IPOs offers investment opportunities. Any individual who thinks a company's stock will rise can buy stocks, even just one share. If a stock does rise, the individual can sell and take the profits (along with the tax implications). Or an individual can hold the stock over time, waiting for it to grow in value — or absorb the losses if it declines.
It is difficult for a corporation to get listed on an exchange in order to offer stock publicly. Companies must be profitable. Exchanges have strict standards. The New York Stock Exchange (NYSE), for example, requires companies to be profitable and have earned at least $10 million in pre-tax income in three previous years. Publicly traded companies comply with a blizzard of regulations and reporting requirements.
Just a fraction of U.S. businesses qualify to be on stock exchanges such as NYSE, Nasdaq or the American Stock Exchange. The U.S. is home to millions of businesses, but the vast majority are not on stock exchanges. About 1.7 million businesses are traditional C corporations, while there are a combined 7.4 million partnerships and S corporations. There are about 23 million sole proprietorships. By comparison, there were only 4,266 companies listed on stock exchanges as of 2019.
Corporations are legal entities separate from their founders and owners. They can enter contracts, take out loans and perform various other activities in their own name. Most corporations issue stocks, or small slices of ownership. Sometimes these stocks are held by company founders, families and private investors, but some corporations sell stocks to anyone. These companies issue public shares through stock exchanges.
For example, Affirm Holdings Inc., a financial technology firm, helped kick-off 2021 with its IPO on January 13th. Stocks gained 90 percent on the first day of trading, netting many early investors a substantial profit.
Investors can also lose money, however. In May 2019, Uber launched its IPO and shares dropped nearly 8 percent on the first trading day. By December, share prices had declined nearly 40 percent.
