After-Market Performance

After-market performance is the variation in price level of a newly issued stock during a period after its initial public offering (IPO). No standard ending time period is considered, but after-market performance begins on the first day the IPO shares trade publicly. Typically after-market performance will be measured through the lock-up period which can be anywhere from several days to three, six, nine months or longer after the IPO date. This allows time for the market price of the stock potentially to even out before the potential sales of insider shares that might be sold quickly after the lock-up period ends.

By looking at the after-market performance of all IPOs over a certain period (as in a calendar year), analysts and investment bankers can estimate the overall market demand for new issues, and may move up or delay a scheduled IPO as a result.

To the company management and employees, the after-market performance of the stock is vital. If the company can reach and sustain a higher market valuation than originally estimated by the underwriting syndicate in open market trading, equity funding may be more affordable than other methods of raising capital. Investors should keep in mind that an IPO may only represent a small percentage of total shares outstanding, only 10 - 20%, with the rest retained by the original investors and insiders. The remaining bulk of shares held by the firm can be used to raise capital down the road as the company looks to grow and enter new markets.

When a well-known company goes public with a hot IPO, the share price can spike during the first day of trading, and then fall to earth rapidly. This can be the result of several factors including a large number of market orders at the open, followed by profit taking by buyers who were able to have their trades filled before the volume of orders caused the run-up in price. By the end of the first day, it is not unusual for an IPO to have traded in a wide range, ending close to or even below its initial price. In the days and months following the IPO, investors will digest how the IPO performed and after-market performance may flatten out until the lock-up period ends.