The big difference between US stock IPOs and Hong Kong stock IPOs! Understand the listing requirements, processes, and investment traps in one article

What exactly is an IPO? Why do all companies want to go public?

You’ve heard of IPOs, but few truly understand them. Simply put, an IPO (Initial Public Offering) is the process by which a private company sells shares to the public for the first time, transforming from a private enterprise into a publicly listed company.

Why do companies go public? Because relying solely on founders’ and early investors’ funds is far from enough. As the business expands and ambitions grow, it needs to raise capital from the capital markets. Going public not only allows for rapid fundraising of large sums, but also enables early shareholders to cash out, enhances the company’s reputation, and facilitates employee incentives—multiple benefits in one move.

In other words, an IPO is a critical moment for private investors to realize returns, and also an opportunity for a new wave of retail investors to enter the market.

US Stock IPO vs Hong Kong Stock IPO: A Big Comparison of Listing Thresholds and Processes

Want to enter the US stock market or the Hong Kong stock market? The difficulty levels of listing are quite different.

Hong Kong Stock IPO: Four Steps

Process:

1. Preparation Stage — Appoint intermediaries such as investment banks, lawyers, and accountants, and initiate due diligence and audits
2. Application Review — Submit application documents to the Hong Kong Stock Exchange, publish the prospectus, and respond to regulatory inquiries
3. Roadshow and Pricing — Conduct non-deal roadshows and international roadshows, and finalize the issuance price
4. Official Listing — Conduct a public offering in Hong Kong and commence trading

Listing Thresholds (for the Main Board, meeting any one condition suffices):

• Condition 1: Profit of over HKD 20 million in the most recent year, cumulative profit of over HKD 30 million in the previous two years, and profit not less than HKD 500 million at listing
• Condition 2: Market capitalization of over HKD 4 billion at listing, and revenue of over HKD 500 million in the most recent financial year
• Condition 3: Market capitalization of over HKD 2 billion at listing, revenue of over HKD 500 million in the most recent financial year, and cash flow from operating activities of over HKD 100 million in the last 3 financial years

Overall, Hong Kong listing requirements for profitability are relatively clear, suitable for companies with stable cash flows.

US Stock IPO: Six Steps

Process:

1. Selecting an Underwriter — Hire an underwriter or investment banking team to guide the IPO process
2. SEC Registration — Submit registration statement to the U.S. Securities and Exchange Commission, disclosing financial data and business plans
3. Roadshow Promotion — Conduct nationwide roadshows within two weeks before IPO to pitch to potential investors
4. Pricing Decision — Company and underwriters agree on a reasonable price, select the listing exchange, and obtain SEC approval
5. Public Disclosure — Release the prospectus to the public, announcing the specific IPO listing date
6. Official Trading — After securities are allocated, stocks begin trading on the secondary market

Listing Thresholds:

New York Stock Exchange (NYSE), meeting any one condition:

• Condition 1: Total pre-tax profit of at least $100 million over the past 3 fiscal years, with at least $25 million in the last 2 years
• Condition 2: Global market cap over $500 million, revenue over $100 million in the past 12 months, and cash flow from operating activities totaling over $100 million in the last 3 fiscal years, with at least $25 million in the last 2 years
• Condition 3: Global market cap over $750 million, and revenue of at least $75 million in the last 2 fiscal years

NASDAQ, as a national market, meeting any one condition:

• Condition 1: Positive earnings of over $1 million in any 2 of the last 3 full fiscal years, shareholders’ equity over $15 million, public market value over $8 million, and at least 3 active market makers
• Condition 2: Shareholders’ equity over $30 million, 2 years of operating history, public market value over $18 million, and at least 3 active market makers
• Condition 3: Listed securities market value over $75 million, public market value over $20 million, and at least 4 active market makers
• Condition 4: Total assets and revenue of at least $75 million in any 2 of the last 3 full fiscal years, public market value over $20 million, and at least 4 active market makers

Key Difference: US IPOs are less strict about profitability compared to Hong Kong, placing more emphasis on market cap, cash flow, and trading activity. For high-growth but unprofitable tech companies, US IPOs are often more friendly.

Investing in US Stock IPOs: Can You Really Make Big Money?

Advantages of US Stock IPO Investment

① The Cheapest Entry Price

Many quality stocks are private companies that retail investors simply can’t buy. But through US stock IPOs, these potential giants are finally open to all investors. IPO offering prices are usually discounted prices provided proactively by the company—this might be your only chance to buy at the lowest price. Missed it, and the stock could skyrocket, making you regret missing out.

② High Return Potential

Most companies launch US stock IPOs during bull markets—this itself is a bullish signal. Quality companies go public at relatively low prices, allowing retail investors to share in the IPO’s red-hot gains. If lucky, a limit-up on the first day isn’t a dream.

③ Relative Information Symmetry

Before listing, information about US IPOs mainly comes from the prospectus, and large institutional investors do not have extra informational advantages. In this regard, ordinary investors and institutional investors stand on a relatively equal footing.

Risks of US Stock IPO Investment

① Speculation and Cash-Out Double Threat

Good companies also risk choosing the wrong one. If you pick a company that isn’t truly a good investment target, even if it successfully lists, when large institutions and deep-pocketed investors start selling, retail investors will find it hard to keep up and exit in time. Many end up as bagholders.

② Good news is already priced in

Don’t forget, all positive factors before a company goes public—successful fundraising, business prospects, market potential—are already digested into the initial stock price by the pricing team. This means the short-term upside potential may be significantly compressed, and early investors’ gains are often limited.

③ Future performance is uncertain

Pre-IPO financial data is historical. After listing, whether the company can sustain high growth or encounter black swan events is unpredictable. If performance falls short of expectations, stock prices can plunge sharply.

How to Rationally Invest in US Stock IPOs? Practical Tips

1. Deeply understand the company’s fundamentals — Before investing, thoroughly research the target company’s business model, competitive advantages, financial status, and industry position. Don’t be dazzled by the shiny story.
2. Avoid chasing hot topics — When similar companies go public en masse, risks are highest. Stay cautious and avoid blindly following the trend.
3. Control position size and diversify risk — US IPOs are highly volatile; avoid heavy positions in a single stock. Consider combining with other investment types.
4. Long-term holding is better than short-term speculation — US IPOs may surge or plunge in the short term, but quality companies tend to generate substantial returns over the long run. Set reasonable expectations and prepare psychologically.
5. Set stop-loss points — When stock prices fall below your expected level, cut your losses decisively. Don’t hold onto hope for a rebound.

In Conclusion

US stock IPOs are both an opportunity and a trap for retail investors. On one hand, they offer a rare window to buy quality growth stocks at the most favorable prices; on the other hand, chasing gains, over-leveraging, and stock picking mistakes can lead to losses.

For those wanting to participate in US stock IPOs, the most important thing is to stay rational before excitement—understand the company, assess risks, control your desires, and think long-term. Only then can US stock IPOs become a tool for wealth growth rather than a gamble.