What does IPO really mean? A comprehensive guide to the meaning of IPO in Hong Kong and US stocks and the entire listing process

IPO Meaning Explanation: From Private to Public

What does IPO mean? IPO is the abbreviation of Initial Public Offering, which in Chinese is “首次公开发行”. This IPO meaning reflects a significant transition from a private company to a publicly listed company — by issuing shares to the general public, the company’s ownership shifts from private control to public ownership.

In simple terms, IPO means a gateway to the capital markets. When a company reaches a certain stage of development, and the initial funds invested by founders are insufficient to support further expansion, the management will seek to raise funds through a public share offering. During this process, early private investors have the opportunity to sell their shares for profit, while new public investors gain the chance to buy shares of a high-quality enterprise.

Beyond its financing function, IPO also carries multiple meanings: gaining broader brand recognition, enhancing corporate reputation, creating liquidity for employee equity incentives, and helping founders realize wealth accumulation.

Hong Kong Stock IPO Listing Standards and Operational Process

Hong Kong Main Board IPO Financial Thresholds

The Hong Kong Stock Exchange (HKEX) has relatively flexible requirements for listed companies, with main boards accepting companies that meet any of the following conditions:

• Net profit of over HKD 20 million in the most recent financial year, with cumulative profits of at least HKD 30 million over the previous two years, and a profit of HKD 500 million at the time of listing
• Listing valuation not less than HKD 4 billion and revenue exceeding HKD 500 million in the most recent financial year
• Listing valuation above HKD 2 billion, revenue of over HKD 500 million in the most recent financial year, and a cumulative operating cash flow of HKD 100 million over the last three years

Complete Pathway for Hong Kong Stock IPO

The Hong Kong IPO process generally includes seven stages:

First, the issuer needs to appoint intermediaries such as sponsors, accountants, and legal teams to form an underwriting team. Then, these intermediaries conduct in-depth due diligence, including financial audits, equity verification, asset checks, and drafting legal documents like the prospectus.

Next, the company adjusts its organizational structure according to business development needs, and if necessary, introduces strategic investors to inject capital. Then, it submits application materials to the China Securities Regulatory Commission (CSRC) and HKEX, and publishes the offering documents on the HKEX website to accept market inquiries.

The final stages include roadshows (including meetings with institutional investors and international roadshows), setting the issue price, and officially listing and issuing shares on the Hong Kong market.

US Stock IPO Listing Conditions and Launch Mechanisms

New York Stock Exchange (NYSE) Entry Requirements

The NYSE has high profitability requirements for prospective listed companies, including:

• Cumulative pre-tax profits (excluding extraordinary items) of at least USD 100 million over the past three fiscal years, with over USD 25 million in the last two years
• A global market capitalization of over USD 5 billion, revenue of at least USD 1 billion in the most recent 12 months, and a total operating cash flow of USD 100 million over the last three years, with each of the last two years not less than USD 25 million
• A global market capitalization above USD 7.5 billion, with revenue of at least USD 75 million in each of the last two years

Nasdaq (NASDAQ) Flexible Admission Mechanism

NASDAQ adopts differentiated standards, and the national market segment accepts companies that meet any of the following conditions:

• Earnings before tax of USD 1 million in the most recent full fiscal year or any two of the last three years, with shareholders’ equity over USD 15 million, public market value over USD 8 million, and at least three active market makers
• Shareholders’ equity over USD 30 million with two years of operational history, public market value over USD 18 million, and at least three active market makers
• Listed securities with a market value over USD 75 million, public market value over USD 20 million, and at least four active market makers
• Assets plus income totaling USD 75 million in any two of the last three years, with public market value over USD 20 million and at least four active market makers

Compared to NYSE, NASDAQ’s parameters are more diverse, providing more options for startups and growth companies.

The Double-Edged Sword of IPO Investment: Opportunities and Risks Coexist

Core Advantages of Participating in New Stock Offerings

The most attractive aspect of IPO investment is the participation price. The IPO price usually reflects a conservative valuation of the company, and once listed, the stock price may rise rapidly. If investors can accurately grasp this, they have the chance to achieve substantial short-term gains.

Additionally, all participants in the IPO process generally have access to similar information. Since investors mainly rely on the prospectus and official disclosures to understand the company, large institutional investors do not have traditional information advantages in the secondary market, putting retail investors on equal footing in terms of information transparency.

High-quality companies launching IPOs in a bull market environment often indicate a higher probability of upward stock price movement. The low issuance price creates significant profit potential for investors.

Potential Pitfalls to Watch Out For

The hype after a new stock is listed should not be underestimated. If the company’s business model has flaws or limited competitiveness, and large funds start to reduce holdings, ordinary investors often react slowly and may get caught in a downturn.

Another important issue is price reaction. The company’s growth story and positive factors may have already been fully priced in during the IPO, meaning the stock’s upward potential after listing could be limited, or even risk breaking the offering price.

IPO investments also require investors to have strong fundamental analysis skills and risk awareness; blindly chasing the trend is not advisable.

Summary: Rational Participation in the IPO Market

With the prosperity of global capital markets, IPOs have become a key focus for investors. The core of participating in IPO investments is to stay calm and rational — thoroughly research the company’s financial status and industry prospects, avoid being dazzled by short-term gains, adopt diversified investment strategies to reduce risks from individual projects, and adjust strategies flexibly according to market fluctuations.

From Hong Kong stocks to US stocks, different markets have their own IPO mechanisms. Investors should choose markets suitable for their risk tolerance and capital scale. Long-term holding of high-quality listed companies’ stocks often yields more stable returns than frequently chasing new stocks.