Investors get excited when the number of subscriptions to a planned IPO grows quickly. Many people see a high subscription status-especially multiples above 10x or 20x-as a sign that the market trusts the company. That being said, the real message is more complicated. Strong subscription can mean that people are really interested in the business plan, that people remember the brand well, or that the market is at a good time. It can also be a sign of following the crowd, pushy marketing, or short-term players’ speculative interest.
The different types of subscriptions and what they tell you
There are different types of IPO subscription status, and each one tells a different story:
- Retail subscriptions show how most people feel and are often affected by news coverage and hopes of listing gains.
- NII (Non-Institutional Investor) subscriptions show attention from wealthy people and are seen as a strong sign of quality.
- Most of the time, a QIB (Qualified Institutional Buyer) subscription makes the most sense because institutions do a lot of study before committing large amounts of money.
When all three types of numbers look good for an upcoming IPO, it starts a positive feedback loop that can make subscription multiples go up even more.
The risks that are hidden behind a high subscription status
A very high number of people who have subscribed to future IPOs comes with a number of risks. First, the chance of being allotted drops very quickly, especially in the retail area. Second, a heavy oversubscription can cause high hopes for the company on the day of the launch, which may be quickly dashed if it doesn’t live up to the hype. Third, it can mean that the price of the problem is already high, there isn’t much room for it to go up.
Chances that come up when you have a high subscription status
On the plus side, a high subscription rate can support the story of the company’s growth and bring in more investor interest after it goes public. It can also build momentum that drives the price of the stock up on the day it goes public and in the weeks that follow. For buyers who get even a small amount, having a high subscription status often means good listing gains and the chance to hold on to the stock for a long time.
How the status of a subscription changes during the bidding period
Numbers of subscriptions rarely stay the same. Many future IPOs start out slowly on the first day, pick up speed on the second day, and go off the charts on the third day. Some problems start out crazy and then calm down. Following this daily movement can help you figure out the difference between real demand and last-minute retail involvement.
Finding the right balance between long-term view and subscription status
Smart investors don’t take a high subscription status as a decision, but rather as useful information. In addition, they do a thorough study of the company, look at the future of the industry, and check the valuation.