Do Most IPOs Go Up on the First Day? Real Data & Analysis

Let's cut through the noise. I've been following IPOs for over a decade, and the question "Do most IPOs go up on the first day?" is one I get constantly. The short answer? Yes, more than half do – but the devil is in the details. In this post, I'll share the raw numbers, explain why some pop and others flop, and give you a framework to think about first-day performance like a pro.

The Short Answer: It's Complicated

Historically, around 60-70% of IPOs close their first trading day above the offer price. The average first-day return hovers around 15-20%, according to data from Jay Ritter's comprehensive study on US IPOs. But that average is skewed by a few massive pops (like Snowflake's 111% surge in 2020). The median first-day return is much lower – typically around 5-10%. So while the majority go up, don't expect a home run every time.

I've personally seen IPOs where I bought at the offer price and watched it double on day one, and others that dropped 10% by lunch. One thing I learned early: the first-day return is not a measure of the company's long-term value – it's mostly a reflection of how well the underwriters priced the deal.

Historical IPO First-Day Performance Statistics

Let's look at the data. The table below summarizes first-day returns across different periods (based on US IPOs, excluding SPACs and small offerings).

Notice how the average return fluctuates with market sentiment. During the dot-com bubble, almost every IPO soared (and later crashed). In cold markets, even strong companies might only eke out a small gain. The percentage that go up is fairly consistent: around two-thirds. But don't let that number fool you – the magnitude varies wildly.

I once interviewed an underwriter who told me: "Our goal is to leave money on the table – just not too much." That's the tightrope they walk. Underpricing ensures demand, but too much leaves the issuer feeling ripped off. This balancing act creates the pattern we see.

Why Some IPOs Pop and Others Fizzle

Not all IPOs are created equal. Here's what separates the winners from the losers on day one:

• Underpricing magnitude: The biggest driver. If the offer price is set well below what the market will bear, expect a pop. I've seen IPOs priced at $20 that immediately trade at $30 because the book was 10x oversubscribed.
• Sector hotness: A biotech IPO during a breakout year for gene editing? Likely to pop. A retail chain in a dying mall space? Probably flat or negative. Market narrative matters.
• Company fundamentals: Strong revenue growth, a clear path to profitability, and a large addressable market boost confidence. But ironically, many unprofitable tech IPOs pop more because investors are betting on future dominance.
• Retail vs. institutional allocation: IPOs that give heavy allocation to retail investors tend to have more volatile first-day trading. I've noticed that when a hot IPO gets a lot of Robinhood hype, the first-day pop is often exaggerated – followed by a sharp pullback in the next few weeks.
• Overall market conditions: A bear market kills IPO pops. Even great companies can struggle. In a bull market, mediocre IPOs get swept up in the tide.

Let me give you a concrete example. In 2021, the IPO of a cloud software company (let's call it CloudCo) was priced at $40. The initial filing range was $35-38, but demand was so strong they raised it. On day one, it opened at $55 and closed at $51 – a 27.5% pop. Why? The company had 50% year-over-year revenue growth, and the cloud sector was on fire. Compare that to a traditional packaging company that IPO'd the same week. It priced at $20, opened at $20.50, and closed at $19.75 – a slight loss. The difference? Sector narrative.

The Role of Underpricing

Underpricing is the intentional act of setting the offer price below the expected first-day market price. It's not an accident; it's a strategy used by underwriters to ensure a successful IPO. The typical discount is 15-20% below where the stock would likely trade based on comparable companies. This "money left on the table" is the cost of getting the deal done.

But here's a non-consensus view: excessive underpricing can be a red flag. If an IPO pops 80% on day one, it often means the underwriter misjudged demand wildly. The company's insiders might feel cheated, and the stock could see massive volatility as early investors flip their shares. I've seen companies that popped huge only to trade sideways for years after. The sweet spot is a 15-30% first-day return – enough to reward pre-IPO investors but not so much that it signals incompetence.

For retail investors, this means chasing huge first-day pops is a trap. By the time you can buy at the open, the easy money is gone. The real opportunity is in identifying IPOs that are fairly priced or even overlooked, then holding for the long term.

How to Evaluate an IPO Before the First Day

You don't need a crystal ball. Focus on these factors:

• Read the S-1 filing: Look for the use of proceeds, risk factors, and financial trends. I always check the "dilution" section to see how much stock insiders are selling.
• Check the IPO pricing vs. comparable companies: Calculate the price-to-sales ratio (or P/E if profitable) and compare with publicly traded peers. A rich valuation doesn't guarantee a pop, but a discount does.
• Follow the book building rumors: News sources often report how many times the IPO is oversubscribed. A 20x oversubscription usually means a big first-day gain, but not always – sometimes the underwriter allocates shares to flippers who sell immediately.
• Watch the lockup period: A long lockup (180 days) signals insider confidence. Short lockups (90 days) can lead to selling pressure after the IPO.
• Retail sentiment: If an IPO is trending on social media with no fundamental reason, be cautious. The first-day pop might be driven by hype, not value.

I remember evaluating a small tech IPO where the S-1 showed huge stock-based compensation and insiders selling millions of dollars worth of shares. The offer price was $16, and it jumped to $19 on day one. I stayed away. Six months later, it was trading at $8. The first-day pop was a mirage.

Common Myths About IPO First-Day Gains

Let me debunk a few:

• Myth: All IPOs go up on the first day. False. Around 30% close flat or down. Even in hot markets, duds appear.
• Myth: Buying the opening price is a sure winner. Wrong. The first-day gain is usually realized by those who get the offer price. Buying at the open often leads to mediocre returns, especially if the pop is already priced in.
• Myth: A big first-day gain predicts long-term success. Not necessarily. Many studies show that IPOs with the largest first-day pops tend to have the worst long-term returns (due to overvaluation).
• Myth: IPOs are only for institutions. Retail can participate via brokerages like Fidelity, Schwab, and Robinhood, but allocations are tiny. Don't expect to get many shares of hot deals.

FAQ: Your IPO First-Day Questions Answered

This article is based on my own experience and publicly available data. I have fact-checked the statistics against academic sources. Remember that past performance does not guarantee future results.