What Is an IPO Pop? Definition, How It Works and Examples

The standard measure is the first-day return: the first closing price against the offer price. It ignores the opening trade, which is often higher or lower than the close. It also ignores the over-allotment shares, the extra shares the banks can sell when demand is strong. Researchers and the financial press use the close because by then the whole market has had a day to trade.

Two averages are quoted, and they tell different stories. The mean is pulled up by a few very large pops. The median is the typical deal. In 2025, the mean was 29.3% and the median 13.7%. Since 1980, the mean is 19.0% and the median 7.0%. So a typical IPO pops a little, and a handful pop a lot.

Money Left on the Table

The pop has a cost, and it can be measured in dollars. Jay Ritter of the University of Florida defines money left on the table as the first-day close minus the offer price, times the shares offered. US IPOs left $13.11B on the table in 2025, on $38.97B raised. Since 1980, they have left $250.1B on $1,200B, about 21 cents for every dollar raised. The company and any selling shareholders could have received that money and did not.

A pop is the visible result of underpricing: the offer price was set below what the market would pay. The SEC states the trade-off plainly. Underpricing “creates a discount for the initial investors, increases the demand for the IPO and helps the underwriters sell all of the available shares.” Research offers three groups of explanations, and none of them is complete.

• Information asymmetrySome investors know more about the company than others. In Rock’s 1986 model, uninformed buyers get full allocations of the bad deals and small ones of the good deals. So the offer must be cheap on average, or they stop buying.
• Book buildingUnderwriters need informed investors to reveal what they would pay. Benveniste and Spindt (1989) show that rewarding them with underpriced shares is the price of that information. The data fit. Since 1980, IPOs priced above their range rose 50% on day one on average. Those priced within the range rose 12%, and those below it 3%. The price moves up, but only part of the way.
• Allocation and agencyUnderpriced shares are valuable, and the bank decides who gets them. Ritter and Welch (2002) argue that conflicts of interest between the bank and the company explain more than information does. FINRA, the body that regulates US brokers, now bans the worst of it in Rule 5131. Banks may not allocate hot shares in exchange for excessive commissions, or to the executives of their investment-banking clients.

Methods that take allocation away from the bank pop less. The 22 US IPOs sold by auction averaged a 12.5% first-day return. How the order book is built, and why the price ends below the level where demand would match supply, is covered in book building. The route with no offer price at all is compared in direct listing vs IPO.

A company with 90,000,000 shares sells 10,000,000 new ones at $20 to raise $200M. The shares close the first day at $26. Follow the money.

The table tells the whole story. The company raised what it needed either way. The difference is how many shares it gave for the money. At $20, the existing holders kept 90.0% of the company. At a full price, they would have kept 92.1%. Each pre-IPO holder, whether a founder, an employee, a fund or a vehicle holding a block, now owns a slightly smaller piece. That is what it cost to give the first buyers a slightly cheaper one. How that works on a cap table, the list of who owns what, is covered in dilution.

On the first day, usually, though not reliably. Since 1980, 16.5% of US IPOs closed below the offer price and 13.0% closed exactly at it. In 2025, almost a quarter, 24.4%, closed below. A pop is the most common outcome, and it is far from certain.

After the first day, the picture changes. Ritter tracks every US IPO from 1980 to 2024 for three years. Bought at the offer price, the average three-year return was 36.3%, or 3.3 points behind the market. Bought at the first close, the price most people can actually pay, it was 19.1%, or 20.5 points behind. Measured against the market, the pop is most of what the average IPO ever delivers. It goes to the investors allocated shares at the offer.

A broken IPO, one that closes its first day below the offer price, is a worse sign. Of the 654 that broke between 2001 and 2024, 67.6% lost money over three years. On average, they trailed the market by 32.0 points. Those that popped trailed it by 8.5 points. A pop does not predict a good stock. A broken deal tends to predict a bad one.

• You cannot sell into itExisting holders are usually bound by a lock-up, a contract that bars them from selling for a set period. The price that matters for your exit is the one on the lock-up expiration date, months later.
• It dilutes youAs the example shows, the company pays for a pop by issuing extra shares to raise the same money.
• It can raise a tax bill before you can sellRestricted stock units (RSUs) that settle at the listing are taxed on their value on the settlement date the plan sets. What you later sell them for does not change that bill. See RSU taxes.
• It flatters the paper valueA first-day close is one day’s price on a small float, the few shares free to trade, before the locked-up shares can trade.

A position held through a single-deal vehicle, such as an SPV that pools investors’ money for one company, is in the same place. The vehicle is the shareholder and is locked up like everyone else. It sells or distributes the shares later, as its documents set out. How that runs at AXEVIL is explained in how exits work.

Common Mistakes

• Reading the pop as the stock’s returnIt is the return from a price most buyers were never offered.
• Chasing it at the openFrom the first close, the average IPO trailed the market by 20.5 points over three years.
• Treating a pop as the company’s successFor the company, it is money not raised. For pre-IPO holders, it is extra dilution.
• Counting paper value on listing dayLocked-up shares cannot be sold at that price, and the float is small.
• Assuming every IPO popsAbout one in six since 1980 closed below the offer, and almost one in four in 2025.

First-day return

The first closing price minus the offer price, divided by the offer price. The standard measure of an IPO pop.

Offer price

The price at which shares are sold in the IPO, set by the company on the underwriters’ recommendation.

Underpricing

Setting the offer price below what the market will pay. The pop is its visible result.

Money left on the table

First-day close minus offer price, times the shares offered. It is what the sellers gave up.

Allocation

The underwriters’ decision on who receives shares at the offer price, and how many.

Book building

Collecting investors’ orders across a price range to set the offer price and allocate shares.

Broken IPO

A new issue that closes its first day below the offer price.

Flipping

Selling shares bought in an IPO almost immediately, usually into the pop.

Float

The shares free to trade on the market. Right after an IPO, it is mostly the shares sold in the offering.

Figures were last checked on October 2, 2026. All first-day and long-run statistics are Jay Ritter’s, from the version of September 25, 2026. It counts US operating companies with an offer price of at least $5. It excludes SPACs, funds and ADRs, the US-traded certificates for foreign shares. Rules are cited for the United States.