IPOs - Speak The Basics (Very Good Reading) (12)

Recent developments --


This section, usually added to amended filings, updates any recent notable events, often how a company performed in its most recent quarter.

Make sure this section is mainly good news.

Usually found in "Recent Developments" (not always there).



Selling stockholders --

It's usually a bad sign when a large number of shares in an IPO come from selling stockholders, meaning pre-offering investors who are cashing out.

Not only does it mean that the company won't receive the money from the sale of those shares,

but it also should make one wonder why investors would want to sell their shares so quickly if a company's prospects are strong.


In fact, investors usually prefer that management retain a sizable stake in the firm after the offering is completed.

The number of selling stockholders is found in a section called "The Offering," while management's total stake can be found in "Principal and Selling Stockholders."



Use of proceeds --

If a company is st majority of the money to pay off debt or dole out a huge dividend to pre-IPO investors, watch out.

That means people buying shares in the IPO are in essence paying for the company's past, not its future.

Also be careful when a company says it's allocating most of the money for general corporate purposes.


It's comforting if a company has more specific ideas about where your money will be invested -- acquisitions, advertising, capital formation, research and development, etc.

Found in "Use of Proceeds."