The incessant issue that there will be several startups listed on the stock exchange for the first time makes the term IPO or initial public offering often heard in the mass media. What is the importance of an IPO for a company? And are IPO stocks worth investing in?

What is an initial public offering or IPO?

For those of you who often glance at the stock market as investment diversification, of course you are familiar with the term IPO. IPO is an abbreviation of the English term, namely initial public offering. What is an IPO? An initial public offering is the stage when a company offers its shares to the public or the general public for the first time. IPOs are also often known as initial stock offerings. The purpose of the company offering its shares for the public to buy is to obtain a lot of capital and equity from interested investors. This will certainly benefit both parties, because investors will benefit from the shares they invest.  Quoted from The Balance, the company that announced the IPO previously was a private company. When the company has grown large enough, the company will be able to offer its shares to public investors for the first time. Usually this happens when a company has reached a valuation of 1 billion US dollars. However, companies with valuations lower than that value can offer their shares. This decision depends on the company's policyholders taking into account market competition. With an initial public offering, it means that the company will be able to grow more rapidly and ensure its sustainability. Quoted from Investopedia, a company that announced an IPO would be a public company. Through the initial public offering, the general public or investors can bid, buy, or sell shares of a company. So, with this IPO, the company's shares no longer belong to individuals or individuals. Rather, it can be owned by the public or often known as go public. The type of company has also changed from a closed PT to an open (Tbk).

Why do companies conduct initial public offerings or IPO?

There are several factors that make a company decide to do an IPO or go public, what are they?

1. Obtained the status of a Tbk company.

The main purpose of a company going public is to obtain status as a listed company on the Indonesia Stock Exchange. For some business sectors, this status is very important, as it will show that their company is trustworthy, that their company has good governance, that their company is also supervised by various parties, that information about their company is available in various media, etc.  They will use it all to develop their business, get new customers, and even use it for prestige reasons. This reason is not wrong and even permissible, provided that after going public, the company represented by the company's management does not spoil minority investors.  Not a few companies go public for this main reason, then later do not care about the fate of minority investors, and even no longer care about the company's performance and stock price.

2. Corporate funding

IPOs can also be carried out with the main purpose of obtaining funds from the capital market. The first thing behind a company for an IPO is because it is in need of an injection of funds or capital for its operational purposes without having to borrow funds from the bank.  It could be capital obtained from the sale of shares to reduce the amount of debt or loan burden owned by the company. The additional capital in question also means that a company has a plan to expand so that it can increase its consumer reach or production.  In addition, releasing shares to the stock exchange also means that the company's popularity level at that time is increasing, especially in the eyes of investors. This method is also able to increase the liquidity owned by the company.

3. Become a public company

Going public with the main goal of becoming a public company is the true purpose of an initial public offering. A company that wants to become a public company, they will get various benefits, both in terms of prestige and funds. However, they must make the company have good governance, good company development, and high profits, as well as care about the interests of investors.  Companies that IPO with this purpose will make investors business friends, where all their rights will not be ignored or eliminated. Why are there companies that go public with the intention of becoming a public company?  A company that truly becomes a public company will get various benefits, namely their stock price is appreciated higher, their shares will be more liquid, it will be easier to get funding, the company's credibility will be better, and their business will grow faster.  This is because all investors are treated as business friends, so investors will be their spearhead, especially in shaping the company's brand image.

What are the requirements for a company to conduct an initial public offering (IPO)?

For these various reasons, it is not surprising that many companies want to go public or conduct an initial public offering (IPO). However, the process is not easy. There are a number of conditions and stages that must be passed to obtain this status. These conditions can be classified into three criteria 
  • Good corporate leadership structure. Must be a legal entity of a Limited Liability Company (PT), have independent commissioners, have an audit committee and internal audit unit, and have a company secretary.
  • Accounting and financial requirements. The operational period must be more or equal to 12 months. For medium-scale growing companies, operating profit can be lost on the condition that at the end of the 2nd year it already has an operating profit based on projections.
  • Number of shares. The number of shares offered to the public for a growing company is a minimum of 150 million shares. Shareholders must be 500 parties or more. The initial share price is at least IDR 100 or more.

Advantages and disadvantages of IPO stocks

For you as a beginner investor, you should not immediately invest without consideration. Know the beneficial and detrimental sides of this type of investment. Well, the advantages of initial public offering stocks include having high profit potential. A number of experienced investors even said that investing here opens up opportunities to get unlimited profits. Meanwhile, the risk of failure can still be minimized. In addition, stock prices are usually still affordable. So, even with limited capital you can become part of the company. Investing in IPO stocks is also quite easy and flexible because it can usually be accessed through various types of trading applications. The downside is that there is a limit to the number of shares that can be purchased. This is to avoid stocks being controlled by only a few people. Also, the purchase process is not fast and it will take at least about a week if you want to make a withdrawal. Well, the process of a company to be able to conduct an IPO includes, among others, the implementation of the General Meeting of Shareholders (GMS) by the company, appointing an underwriter, preparing complete financial statements, applying for registration, and then offering the share price. The stock offering is the most important and final stage. As a potential investor, you can buy it at designated sales agents. As per the conditions, if the buyer shares more than the available shares, the purchase request will be reduced. So, all share buyers are entitled to allotments. This principle is called allotment.

Want an investment that is sure to be profitable? Diversify your investments

In addition to investing in IPO stocks or initial public offerings, you can diversify your investment by choosing forex investment. This investment is suitable for those of you who want to make a profit in a quick time. The easiest way to invest in forex is to choose the right place to invest, safely, and conveniently. Let's get acquainted with GIC. Unlike other conventional brokerage firms, GIC through the GICTrade platform provides a solution for traders who do not want to be charged with high trading fees. GICTrade is a peer-to-peer trading platform that brings together traders and market makers. So, what is special about GICTrade? As a platform that brings together traders and market makers, you as a potential customer can certainly choose between the two, namely becoming a trader or a market maker.  

GICTrade's role as a transaction venue provider can minimize costs and help maximize profits for traders and market makers as well as create a fair transaction atmosphere and results. Traders will benefit from the absence of commission fees and low swap fees and spreads due to the presence of market makers as liquidity providers.  You can also join the trader community on GICtrade's Telegram to ask fellow traders directly about their trading experience. Also follow GIC's Instagram to get webinar information and various attractive prizes. In addition, on YouTube GIC, traders can also learn to trade for free! What are you waiting for? Get more features that fully support you to start investing and trading forex through GIC. Make transactions simpler, safer, and more profitable. Start by creating a demo account.