Snowflake finished its first trading day about 112% above its $120 offering price. Yet someone who bought at the opening trade gained less than 4% by the close. Same stock, same day.
On September 16, 2020, the stock opened at $245 and closed at $253.93. Its $120 offering price had been set before exchange trading began.
Which starting price belongs to you? Being able to trade a stock does not mean you can buy it at the offering price.
Why a company goes public
An initial public offering (IPO) is a company's first offering of shares to the public. It can fund expansion, give existing owners a way to sell, and establish a public market for the shares. That access comes with the cost of financial reporting and answering to public shareholders.
The primary-versus-secondary distinction still applies: new shares raise cash for the company, less offering costs; selling existing shares pays their holders. One IPO can mix both.
The prospectus is the offering document. It explains the business, risks, planned use of the money, and the rights attached to the shares. A familiar company name does not tell you how much voting power its public shares carry.
In the US, the Securities and Exchange Commission (SEC) reviews the registration documents before the offering can proceed. This review checks disclosure; it is neither an endorsement of the investment nor a guarantee that every claim is accurate.
From filing to an offering price
In a traditional IPO, the company hires investment banks called underwriters. They help prepare and distribute the offering, often buying the shares for resale to investors.
During the roadshow, management presents the business to potential investors. The banks collect indications of interest: how many shares investors want, and at what price. That demand helps the company and its banks agree on the offering price paid by investors receiving IPO shares.
The price balances competing interests. A higher price raises more money for the company on each share it sells. The banks also want a price their investor clients will accept. The offering price is negotiated before the wider market gets its turn.
Banks decide who receives shares and how many: an IPO allocation. Asking for ten shares might get you ten, fewer, or none. Large institutions often receive much of the offering; individual access depends on the broker and the deal.
One stock, two first-day returns
The last step in the flow changes who sets the price. The first exchange trade matches buy and sell interest and can land far above or below the offer. Trading in a new listing can begin after the market's opening bell while the exchange gathers those orders.
In public trading, a buy limit order caps your purchase price but may never fill. The first trade is a recorded price, not a promise to every buyer.
Suppose you receive ten Snowflake shares at $120 and another buyer gets ten at the $245 opening trade. Both hold through the close. Before costs and taxes, each holding ends the day worth 10 × $253.93 = $2,539.30.
Multiply by 100 for a percentage. The gain per share is $133.93 from the offer and $8.93 from the opening trade:
- Offer allocation: $133.93 ÷ $120 × 100 ≈ 111.6%.
- Opening trade: $8.93 ÷ $245 × 100 ≈ 3.64%.
| Entry route | Cost for 10 | Close value | Return |
|---|---|---|---|
| Offer allocation | $1,200 | $2,539.30 | 111.6% |
| Opening trade | $2,450 | $2,539.30 | 3.64% |
Your paper gain is $1,339.30; the other buyer's is $89.30. The $1,250 gap comes entirely from paying $125 more for each of ten shares.
A first-day pop is a jump above the offering price. A buyer at $245 would lose money at any close below $245, even if the stock still finished above the $120 offer. The headline can show a gain while your holding shows a loss.
The pop also says little by itself about years of future profits. A busy first day tests demand for shares; it does not settle what the business is worth.
For shares Snowflake sold at $120, it raised $120 each before offering costs. Later trades at $245 pay the selling investors. They do not give Snowflake a second payment.
The initial supply is limited
Going public does not put every share on the market. An IPO lock-up is an agreement that temporarily restricts sales by certain holders, such as founders, employees or early investors.
In US IPOs, 180 days is common, but each agreement sets its own dates and exceptions, including any release of shares in stages. The prospectus gives the terms. Locked-up shares still count as ownership, even while their holders cannot sell them.
That can leave only part of the total share count available to trade. Strong demand chasing that smaller supply can help push the price up. The same shares can change hands many times, so a small tradable supply can still produce heavy trading.
Expiration releases existing shares from the lock-up; it creates no new shares and forces nobody to sell. That differs from issuing new shares, covered in share offerings and dilution. More shares available for sale do not guarantee a price decline.
Other routes and your checks
A direct listing starts exchange trading without the traditional IPO allocation process. Existing holders can sell through the exchange, and the company can also raise money: NYSE rules allow newly issued shares to be sold in the opening auction.
A special purpose acquisition company (SPAC) first raises cash through its own IPO as a shell with no operating business, then seeks a business to combine with. Its organizers, called sponsors, can have incentives that differ from yours. Shares issued to reward sponsors or finance the deal can shrink public investors' ownership percentage.
For any offering, connect the prospectus to the shares you could actually buy:
- Your price. Check whether your broker is offering an allocation or a trade once the stock opens.
- The cash. Find who is selling and where the proceeds will go.
- Your rights. Match the share class to its voting rights.
- The evidence. Read the latest prospectus for the business, financial history and risks; the SEC filings guide shows where to find it.
- The supply. Find whose shares are locked up and when those restrictions lift.
Newly public companies may have little history of public reporting. Limited tradable supply can also make the early price jump around. The prospectus and your actual entry price tell you more about the investment in front of you than the size of its debut headline.
An offering can raise company cash. A stock split changes the units of shares already held, without bringing new money into the business.
In short
- The offering price and the first exchange price belong to different transactions.
- Your first-day return depends on your entry price, not the headline's starting point.
- The company receives proceeds from shares it sells, not from later price jumps.
- Lock-ups temporarily restrict specified holders; their expiration does not force selling.
- The prospectus tells you what is being offered, who receives the cash, and what risks come with it.