A one-article guide to understanding what an IPO is, and how to plan for listing on Hong Kong and US stock markets

When mentioning a company’s IPO launch, many investors may have questions—what does an IPO really mean? Why should we pay attention to such events? What are the differences in listing standards between Hong Kong stocks and US stocks? Is investing in IPO new shares truly worthwhile? With these questions in mind, this article will systematically clarify the core logic of IPOs.

The Essence of IPO: From Private to Public

What does IPO mean?

IPO stands for Initial Public Offering, referring to the process where a privately held company first issues shares to the public and becomes a listed company.

Understanding the core purpose of an IPO is key: when a private company relies on initial funding to grow rapidly but hits a growth ceiling, internal financing alone can no longer meet expansion needs. At this point, issuing shares to the market becomes an important financing channel. An IPO represents the transfer of ownership from private to public, and it is also a window for founders and early investors to realize returns.

Through an IPO, private company shareholders can sell all or part of their equity to create liquidity, while the public market opens the door for millions of investors to buy shares of high-quality companies. For the issuing company, an IPO not only raises funds to pay off debts and develop business but also significantly enhances corporate image and visibility.

Investment Logic and Risk Considerations of IPO New Shares

Before comparing the conditions of Hong Kong stocks and US stocks, it’s important to understand the core motivations for participating in IPO investments.

Advantages of investing in IPO new shares

1. Lowest entry price. Most high-quality companies cannot be held by retail investors due to private ownership attributes. IPOs provide ordinary investors with the opportunity to buy growth-oriented companies at the cheapest prices. IPO pricing usually reflects a discount rate proactively released by the company—missing this window often means subsequent stock prices rise quickly, and re-entry costs double.

2. Relatively broad profit window. Companies often choose to launch IPOs during bullish market phases, which means a higher probability of stock price appreciation after listing. Coupled with relatively low initial pricing, investors have ample room to profit from post-listing gains.

3. Relatively symmetrical information. During IPOs, all participants primarily obtain information from the prospectus. Large institutional investors do not have significant informational advantages over retail investors, which helps protect small and medium investors to some extent.

Risks that should not be ignored

First is liquidity risk. If the selected company does not meet expectations, when large institutional investors and capital providers sell off heavily, ordinary investors may find it difficult to match the selling speed, facing the risk of being trapped.

Second is over-optimism risk. The various positive factors of the issuing company are already priced into the IPO offering price, which may limit short-term gains for investors. Long-term holding readiness is necessary.

Hong Kong Stock IPO: Comparing Three Main Listing Paths

The Hong Kong Main Board IPO adopts a conditional approach, where submitting an application requires meeting any one of the following conditions:

Path 1: Profit-oriented Profit of at least HKD 20 million in the most recent year, or a total profit of at least HKD 30 million over the previous two years with a profit of no less than HKD 500 million at the time of listing. This is a common choice for traditional profit-driven enterprises.

Path 2: Market capitalization priority Market cap of at least HKD 4 billion at listing and revenue of at least HKD 500 million in the most recent fiscal year. Suitable for growth companies with certain scale but not yet high profits.

Path 3: Comprehensive assessment Market cap of at least HKD 2 billion at listing, revenue of at least HKD 500 million in the most recent fiscal year, and cash inflows from operating activities totaling at least HKD 100 million over the past three fiscal years. This path requires a healthy growth trajectory and cash flow.

The core process of Hong Kong IPO includes: selecting intermediaries (sponsors, accountants, lawyers, etc.) → due diligence and audit → business asset restructuring → filing with the China Securities Regulatory Commission and Hong Kong Stock Exchange → roadshows and pricing → official listing. The entire cycle typically takes 6-12 months.

US Stock IPO: Differentiated Thresholds on Two Major Exchanges

NYSE New York Stock Exchange Standards

NYSE prefers companies with solid fundamentals, offering three listing routes:

Route 1: Pre-tax earnings (excluding non-recurring gains/losses) totaling at least USD 100 million over the past 3 fiscal years, with each of the last 2 years exceeding USD 25 million.

Route 2: Global market capitalization of at least USD 500 million, revenue of at least USD 100 million in the past 12 months, and cash inflows of at least USD 100 million over the past 3 fiscal years, with each of the last 2 years having cash inflows no less than USD 25 million.

Route 3: Global market capitalization of at least USD 750 million, with revenue in each of the last 2 fiscal years no less than USD 75 million.

NASDAQ Standards

NASDAQ is more friendly to tech and growth companies, with more flexible thresholds. For example, the national market has four routes:

Route 1: Any two of the last 3 years with recurring pre-tax profits of at least USD 1 million, shareholders’ equity of at least USD 15 million, public market capitalization of at least USD 8 million, and at least 3 active market makers.

Route 2: Shareholders’ equity of at least USD 30 million, two years of operating history, public market capitalization of at least USD 18 million, and at least 3 active market makers.

Route 3: Listed securities market value of at least USD 75 million, public market capitalization of at least USD 20 million, and at least 4 active market makers.

Route 4: Any two of the last 3 years with total assets and revenue of at least USD 75 million, public market capitalization of at least USD 20 million, and at least 4 active market makers.

The full US IPO process involves: hiring investment banks for underwriting → submitting Form S-1 to the SEC → ongoing communication and revisions with the SEC → roadshows and pricing → official listing. The cycle usually takes 3-6 months, more efficient than Hong Kong.

Decision Framework for IPO Investment

Before participating in IPO investments, investors need to establish a clear decision-making framework:

Step 1: Understand fundamentals. Deeply analyze the company’s business model, competitive advantages, financial health, and industry position, rather than being misled by hype around the listing concept.

Step 2: Assess valuation reasonableness. Compare with comparable listed companies in the industry to judge whether the IPO price is attractive, and beware of overvaluation traps.

Step 3: Develop risk control strategies. Clarify entry scale, stop-loss points, and holding periods. Avoid chasing short-term limit-ups; instead, focus on long-term value.

Step 4: Diversify risks. Do not invest all in a single IPO; instead, balance risk and return through portfolio allocation.

IPO acts as a bridge connecting private enterprises and the public market, and it is an important window for investors to participate in the growth of high-quality companies. However, this window is full of opportunities and risks. The key lies in whether investors have sufficient fundamental understanding, risk awareness, and the ability to make rational decisions without being swayed by market emotions.