Pre IPO Insights
Hot IPO Stocks

27 June 2022

Hot IPO:Definition,How it Works and Examples

Hot IPOs attract investors who believe their demand will surpass the total shares offered. Initial public offerings whose demand exceeds supply are said to be oversubscribed. Short-term speculators in San Francisco usually target oversubscribed initial public offerings. Read on to learn more about hot IPO

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What is Hot IPO?

An initial public offering with a significant demand is a hot IPO. These initial public offerings are widespread and gather high amounts of interest from the media and fintech investors like Chime before the firm becomes a public company. Hot IPOs generate attention and hype, which results in a considerable rise in growth stock prices once the organization goes public. These IPOs are risky, especially if the involved company has a poor record of success. 

What Stocks are Hot to Invest in?

The stock market traded at peak highs across 2021, maintaining its power from 2020’s second half. The IPO market has maintained good performance to date. While investor opinions could be changing with the expected rise in interest rates, there are various hot IPOs in the market, and others will hit the market soon.

Last year set a record in the initial public offering realm. Wall Street and Bloomberg set clear records with the overall IPOs that entered the markets and the total amount raised. The beginning of the trading year in 2022 was not very friendly, meaning upcoming IPOs will face hostility across the year. However, numerous first-class private companies are fit for inauguration on one of the biggest exchanges by the end of the year. Here are some of the most awaited upcoming hot IPOs to watch out for in 2022.

· Robinhood Markets

Robinhood (Nasdaq: HOOD) was among the most awaited IPOs in 2021. The online brokerage firm is among the most popular in the private equity world. Its commission-free stock trades and user-friendly mobile interface have attracted numerous millennial investors. It has also boosted the meme stock demos in AMC Entertainment (Nasdaq: AMC) and triggered a rise in cryptocurrency prices.

Robinhood has sufficient numbers to support the hype. In 2021’s first three quarters, there was more than 120% rise in revenue. Funded accounts were over 20 million by the end of 2021’s third quarter. These numbers have been doubling annually. Despite the powerful debut, the stock has fallen, leaving many people doubting its potential to become a significant performer in cryptocurrency. Some core metrics dropped following the Dogecoin boon during 2021’s second quarter.

Robinhood introduced crypto wallets towards the end of 2021, demonstrating its willingness to embrace innovations. The regulation threat and controversy still uncertain the company’s future. Still, investors believe the company will continue changing the way they invest.

· Coinbase


The cryptocurrency explosion was established in April 2021, with the debut of Coinbase, the most significant cryptocurrency exchange in the United States. It was also the first core crypto business listed on the public markets.

Coinbase went public via a direct listing. The approach is akin to an initial public offering; it allows a venture capital company to skip the share trading phase and avoid paying underwriters. The stock starts trading on an exchange at a pre-established price, enabling existing equity holders to dispose of their shares.

Coinbase’s stock price initially surged during its launch, moving from the $250 reference price to more than $430 during its first trading days. However, the stock’s prices dropped in the following weeks and have remained low. Investors can expect the value of Coinbase to be closely connected for the uncertain future to that of popular cryptocurrencies like Bitcoin ETFs and Ethereum. 

· Roblox

Roblox is an online gaming platform that went public during the first quarter of 2021 via the direct listing, and its stock gained value in the following weeks. Roblox doesn’t develop the games, but it operates a platform that allows interested parties to build video games.

By September 2021, Roblox had attracted over 8 million onsite developers and more than 45 million daily active users. Roblox experienced tremendous growth during the Covid-19 pandemic when bookings rose by more than 170% in 2020 against 2019’s 39%. However, the company’s management says growth will drop as the pandemic wanes.

Still, the platform business model has been successful for other firms and should do the same for Roblox. The firm has various competitive advantages like structural restrictions to entry and network effects, which are expected to support its long-term growth.

· Instacart


Instacart, a leader in the online grocery delivery world, is expected to go public sometime in 2022. An IPO has been forthcoming since Apoorva Mehta, the CEO, announced the firm’s intentions in September 2019.

In November, the company said it was halting its plans to go public to expand its business. Still, Instacart is likely to announce an IPO soon. The company experienced exponential growth during the pandemic. During a $39 billion valuation the company held in March 2021, it raised over $260 million, demonstrating that an Instacart IPO would be a big debut. 

· Reddit

Reddit, a popular message and social media board site confidentiality, filed for an initial public offering in late 2021, indicating that it would be among the most significant upcoming IPOs in 2022. According to private funding rounds, its valuation has risen in the past few years to hit $3 billion and $10 billion in 2020 and 2021, respectively.

Final-stage private investors usually speculate that a possible IPO will trigger a solid upside. When Reddit chose Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) as core underwriters for its IPO in January, it’s said to have been seeking an over $15 billion public valuation. Following the tough tech stocks beginning in 2022, Reddit must compromise on its optimal valuations. 

· Discord


Discord is an application that provides instant messaging, video, and voice calls. The company has experienced fast growth, with its monthly active users rising from 56 million to more than 135 million in 2020. According to the Wall Street Journal, Microsoft approached Discord in 2021 to discuss its buyout for $10 billion. However, the deal flopped. during a funding round held in September 2021, the company’s valuation was $15 billion.

· Stripe

Stripe, a digital payments firm, is the most profitable privately-owned tech start-up in the United States. It is one of the most awaited IPO today. While it is yet to announce its plans to go public, it has taken the initial steps to debut in the market, bringing along a law firm to walk it through the process, according to Reuters.

The wire service also expressed the company’s plans to go public through a direct listing instead of a traditional initial public offering because it doesn’t plan on raising funds. Stripe offers cloud software, allowing businesses to process payments seamlessly. During its funding round in March 2021, the company’s valuation was $95 billion. Following this massive valuation, a listing is forthcoming. Insiders and early investors want the company to go public to liquidate its holdings.

· Rivian


Electric vehicles have continued attracting high valuations since Tesla’s stocks skyrocketed in 2020. The firm became the most recent interested party in investing in the sector after going public in 2021. The electric vehicle company’s market cap rose briefly beyond $150 billion before dropping. Rivian had nearly zero revenue before initiating its IPO.

The firm is willing to sell up to 100,000 delivery vans to Amazon. It counts Ford and Amazon as its most significant investors. Rivian is increasing the production of its R1T pickup truck, is planning to release 40,000 vehicles this year, and targeting 1 million in ten years. The electronic track has gathered rave reviews, and its stock might compare to Tesla’s if Rivian builds a similar dedicated fan base.

How Hot IPOs Work?

When a company is launched, only one person or a group owns it. One of the strategies private companies use to raise money is through going public via an initial public offering. They can collect a substantial amount of money within a short time if the issue receives public attention, becoming a hot IPO. Initial public offerings enable private companies to utilize the demand for their stock. The company can use the proceeds to finance expansion, repay debt, or invest in facilitating future growth. 

Before initiating an IPO, a company enlists the services of an investment bank or financial institution to evaluate the possibilities for a profitable IPO on its stocks. One of the investment banks will play the role of an underwriter for the suggested issue. The underwriter assists the company in setting the price per share. They could offer some shares to an individual or institutional investors of their volition.

High demand for stocks during an IPO triggers an increase in stock prices soon after it starts trading. The sharp rise is usually unsustainable and indicates a price decline that can have a massive impact on the market. 

Steep price moves affect initial shareholders once trading launches on the secondary market. Underwriters could give special treatment to high-value customers during a hot IPO so they can suffer some risk should they overprice the stock. Rapid price volatility once a trade opens could affect early shareholders in the secondary market.

Reasons for Launching Hot IPOs

Companies go public for various reasons, as seen below. 

· To Raise Funds

The core goal of launching a hot IPO is to raise funds. Companies can issue share capital to raise funds for expansion and growth. When investors subscribe to the shares, the company collects a substantial amount from the market, allowing the company to meet some of its financial needs. A company can collect enough funds to reduce its debt burden by listing securities. 

· It’s an Exit Route for Existing Investors

The shares of numerous private firms are held by some stakeholders like private investors or the organization’s promoters. Suppose such investors want to liquidate their stake entirely or partially. Launching an IPO could provide a solution. The company’s current investors could give out their shares to the public via an Offer for Sale and dispose of their claims to the public. 

· To Gain Marketability and Liquidity of Shares

The New York stock exchange is a hub of trading securities. As a result, listing allows an institution’s shares to participate in their trading activity. Eventually, the shares become liquid and easily marketable, motivating investors to own shares in the company. 

· To Win the Trust of Stakeholders

When an organization is listed, it must comply with the rules set by the market regulator, SEBI. The regulator controls the organization’s financial disclosures, corporate activities, and trading activities. That eliminates the possibility of fraud or malpractice, enabling the organization’s stakeholders to trust its management and operations. 

· To Enhanced Visibility 

Listing creates brand awareness. Companies grab the attention of analysts and investors during an IPO who assess its technical and fundamental aspects. That builds the company’s public profile and can boost its reputation and goodwill in the market. Through an IPO, a company becomes competitive because its share price mirrors the market perception. Suppose the company succeeds. Its shares will be in demand, boosting the share price, helping it to raise its market capitalization and become a reputable brand. 

What makes Hot IPO Stocks?

Five different steps are involved in the IPO process. A company planning to issue its shares should work with one or various underwriters. Here are the steps to a hot IPO

  • The issuer chooses an underwriter and works on an agreement
  • The issuer works with the underwriter to outline a prospectus and record the offering with the U.S. Securities and Exchange Commission
  • The underwriter organizes roadshows to advertise the offering and its management to prospective investors
  • The underwriter calculates the offering’s final price once SEC authorizes it
  • A lock-up period follows after the launch of the training. Institutional investors are blocked from selling their holdings to the public during this phase. Doing so prevents a possible price destabilization or run on the stock. 

Companies considering issuing stock through an IPO should take time to plan. They should consider underlying issues, including executive compensation, corporate planning, corporate structure, bylaws, and corporate charter. 

Often, issuers work with established investment banks with a chain of institutional investors because they are conversant with the issuer’s business. Such banks track and maintain a market interest for the firm planning to sell shares on a public stock exchange. 

Oversubscribed vs. Hot IPOs

Investors seeking hot IPOs anticipate the demand for publicly traded shares to surpass the supply. Offerings with higher demand than the total shares provided are referred to as oversubscribed shares.

Short-term investors are attracted to such IPOs. Trading price declines occur during the initial trading day following the high demand for shares. Organizations manage such scenarios to ensure their initial public offerings appear successful. The potential of an underwriting is based on the trading price, size of the IPO and the total interest in the shares.

When done correctly, the alignment maximizes profit for the issuer and the investment bank. An underpriced IPO experiences a price drop once the shares start trading before the market adjusts to the immense demand. The underwriter can’t align supply and demand by issuing more shares because the registration statement contains the fixed number of shares to be issued.

Examples of a Hot IPO

Examples of a Hot IPO

Facebook’s IPO is considered a hot IPO. At the beginning of 2012, experts suggested that the social giant’s long-awaited initial public offering could trigger a significant investor interest. Th IPO sought to raise approximately $10.6 billion by disposing over 337 million shares at between $28 and $35 each.

The experts’ prediction was an oversubscribed IPO. When the market launched in May 2012, investors’ demand for the company’s shares surpassed the supply. To leverage the oversubscribed IPO and satisfy investor demand, Facebook increased the total shares to 421 million. The company also increased the price range to between $34 and 38 for each share. Together with its underwriters, Facebook raised the supply and IPO price to meet demand and reduce the oversubscription. 


A hot IPO is one of the most compelling offerings that produce fast results. Companies launch an IPO for various reasons, as we have learned in this article. If you are an entrepreneur thinking about launching an IPO for your company, use the tips in this article as a guide to actualizing your plans. 

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