How to buy IPO shares in Australia (ASX)

An initial public offering (IPO) is when a private company lists on a public stock exchange for the first time.

In Australia, IPOs almost always take place on the Australian Securities Exchange (ASX).

IPOs are normally the first chance for retail investors to invest in the company and as a result, IPOs often create a lot of hype and excitement, particularly if it's a well-known brand.

Unfortunately, retail investors don't always get the chance to participate in IPOs (especially those with high demand) but there are still ways for you to get involved.

3 ways to invest in IPOs in Australia

There are 3 main ways that you can buy shares in companies that are completing an IPO:

1. Purchase pre-IPO shares by signing up to a participating stock broker.
2. Buy stocks through an online share trading platform after the company has listed on an exchange (post-IPO).
3. Be an employee of the company and be offered (or purchase) pre-IPO stock options.

Can anyone take part in an IPO?

It's difficult for everyday retail investors to take part in an IPO, particularly if it's a well-known company such as Uber.

Because the company only has a limited amount of stock to offer, the shares available through IPOs are often reserved for large institutional investors (like other businesses or investment banks) and high-net-worth investors (those with large portfolios and annual income well into the six figures).

Retail investors might get access to an IPO if the demand for the IPO has been lower than expected. You'll need to be signed up with a stock broker in order to get invited to take part in the IPO.

If your broker is offered a portion of the company's shares to sell to clients, the broker will send out the application form for investors to complete. Usually, you'll need to commit to buying over a certain amount of shares and the timeframe to submit your application to take part in the IPO will often be fairly tight.

However, if you can't access shares via the IPO it doesn't mean you can't invest in the company.

When the IPO is over and the shares are officially trading on a public exchange, anyone with a share trading account can buy the shares, as long as it offers access to the relevant stock exchange.

Which online brokers offer IPOs?

IPO stock is typically offered to full-service brokers such as Morgans or Morgan Stanley, however some online brokers will also occasionally make IPO stock available to clients.

The following online share trading platforms offer IPOs (last updated 18 October 2024):

• Amscot
• Bank of Melbourne Directshares
• Bell Direct
• Bendigo Invest Direct
• CMC Markets
• CommSec
• eToro
• nabtrade
• Netwealth
• Sequoia Direct
• St George Directshares
• Stake
• Vanguard
• Westpac Online Investing

It's important to note that when a company goes public, they typically only select a few brokers to allocate IPO stock to.

So even if you sign up to a broker that has offered IPOs in the past, you may still not get access to the IPO you want.

How to buy an ASX IPO

1. Sign up with a broker that offers IPOs. Keep in mind that this won't guarantee you access to a particular IPO.
2. Ask for an application form. You'll generally be able to obtain the form via the company's IPO prospectus but may be able to request it from your broker.
3. Submit your finished application form and organise your payment. Make sure you submit your completed form before the deadline. You'll then need to wait to see if your application is successful.

Compare online brokers to invest in IPOs

Upcoming ASX IPOs

The ASX keeps a list of upcoming floats and listings: companies that have formally applied to list on the exchange within the next four to six weeks, with each company's proposed listing date and contact details. Listing dates can change and new applications are added regularly, so check the ASX list directly for the latest IPOs. If you want to take part in one, the ASX suggests contacting the company or its share registry.³

How can retail investors take advantage of IPOs?

If you miss out on an IPO, don't fret!

When the IPO is over and the shares are publicly listed on the market, anyone can buy them. Find out what date the shares will be available on the exchange and do your research to determine what price you're willing to pay for them.

Typically, the share price will be very volatile in the first few days after they're publicly available following the IPO, as the price is largely driven by supply and demand. It could be worth waiting a few days for the dust to settle before you decide to buy, especially if it's a well-known company that has created a lot of hype.

Why missing an IPO isn't the end of the world

If you're unable to take part in an IPO, it may feel like you've missed your chance to buy the stock at a good price.

However, according to analysis by Nasdaq, while IPO stocks average a gain of 18.4% on the first day, 31% of IPO stocks actually lose value on the first day compared to their IPO price.¹

Almost half of IPO companies also fall on their second day of trading (compared to their price at the end of day one).

So if you miss the IPO, chances are you'll still have a chance to buy the IPO stock at a relatively competitive price after the company lists on the stock market.

Over the longer-term, IPO stocks also tend to underperform the wider stock market. According to separate Nasdaq analysis², 64% of IPO companies are actually underperforming the wider stock market 3 years after their IPO date.

Why do companies hold an IPO?

The main reason a private company will hold an IPO is to raise money. This money can be used to help the business expand into different markets, launch new products, hire a lot more staff, take the business overseas or invest in new infrastructure or technology systems, amongst others.

If the company needs to raise money but doesn't want to list on a public exchange, they'd need to source some private funding. Private funding can come from other companies and investment managers, or high-net-worth individuals directly.

How is the price of an IPO set?

When a company decides to go public, it hires an investment bank to help it achieve this via an IPO. This investment bank is known as the underwriter of the IPO. The underwriter will basically buy the shares that the company wishes to sell and then resell these shares to their clients.

This is why retail investors don't often get access to shares offered through an IPO: the investment bank will offer the shares to its VIP clients first which will largely include institutional investors and wealthy, high-net-worth customers.

The underwriter will also help the company determine an appropriate price for its shares. IPOs offer a predetermined number of shares to investors at a set price per share.

This is different to shares that trade on an exchange already, as the prices of these shares change constantly throughout the day and are influenced by a range of market factors as well as supply and demand.

When a company decides to list its shares publicly on an exchange via an IPO, a lot of work goes on behind the scenes to determine a fair price for the shares.

The value of the company will be calculated, taking into account the current value as well as the potential future earnings the company is expected to make over the coming years.

Then, it will divide this by the number of shares it plans to issue for sale to come up with a fair price per share for the IPO.

Are IPO prices accurate?

There's no guarantee that the share price offered through an IPO represents fair value for that company's shares. Some IPOs for popular brands can create a lot of excitement, but this doesn't mean it's necessarily a good idea to take part in the IPO and buy shares.

Sometimes, if the share price isn't a fair representation of the value of the company, it may fall below the initial offer price immediately after the company is listed on the exchange, meaning retail investors who couldn't buy through the IPO could get the shares for a lower price than those who did buy through the IPO.

Of course, sometimes the opposite is true and the share price will rise straight after the company goes public, driven in part by market hype.

Should you invest in an IPO?

As we said earlier in this guide, it's difficult for retail investors with small portfolios to take part in an IPO. If you're a high-net-worth investor or do find yourself presented with an opportunity to buy shares via an IPO, it's important to understand the benefits as well as the risks involved.

Benefits of investing in an IPO

• Fixed share price. Unlike regular shares, IPOs offer a predetermined fixed price per share that will not change until the IPO is over. You can take your time researching the investment opportunity and know that the share price won't change while you're deciding.
• Get in early. Investing in an IPO gives you the opportunity to be among the first to buy shares in a company, before it's listed on the exchange.
• Invest in popular brands. IPOs give you the chance to invest in brands that were not previously available as investments.
• Sell your shares for profit. Well-known brands can see their share price rise quite significantly once they're officially listed on a public exchange, due to hype and excitement among investors. If you're able to buy shares at a set price through the IPO, you might be able to sell these shortly after the company is officially listed for a profit. This is a high-risk strategy.

Risks of investing in an IPO

• The share price could be overvalued. The set share price offered through an IPO might not be fair value, and you could end up paying more for the shares than they're worth. If the market thinks the shares are worth less than they're priced, the share price will fall after the company goes public meaning you could lose money to begin with.
• New companies are often higher-risk. A lot of IPOs are held by newer companies that have only been operating for a few years or even less. Because they're often still in their growth phase, they are likely to be higher-risk and more volatile than other shares. However, they also offer the potential for strong capital growth too.

Frequently asked questions

• What does IPO mean?

  In investing, an IPO stands for initial public offering. This is where a company first lists its stock on an exchange to become publicly listed. When a company becomes publicly listed, general members of the public can purchase its stock.

• What's an ASX IPO?

  The ASX refers to Australia's largest stock exchange, the Australian Securities Exchange. An ASX IPO is where a company publicly lists its stock on the ASX so that it's accessible to members of the Australian public. Each year, dozens of companies list their stock on the ASX through an initial public offering (IPO).

• How do IPOs work for employees?

  Ahead of an IPO, a company may decide to offer stock to employees as part of their contract or bonus structure. Once the IPO is complete and stock is listed on an exchange, employees may then decide whether they want to purchase company stock directly themselves.

  Typically stock that is offered before the IPO will be at a discounted price to what is offered on the exchange, so owning pre-IPO stock may be beneficial to employees. However, the stock market can be volatile and stock prices may also fall substantially after listing on an exchange, driving the value of employee portfolios down.

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