Red Hat IPO Details

Wil Mahan writes "Salon has a short article with some interesting details about the upcoming Red Hat IPO. It gives a brief overview of the S-1 filing, including potential "risk factors", such as the threat of being squashed by Microsoft. The full text of the filing is also available (warning: 1.5 MB of legalese). "

Comments

Re:Ok, how does this work???

[slew]

For big guys, IPO (initial public offering) shares are sold by this arcane process called
subscription. For small guys like us, an IPO isn't any different than any other stock offering.

Just get a stock broker and put in an order to by a certain number of shares at a certain price.

Unfortunately, for an IPO there isn't a price history until it the IPO happens (remember the I
is for initial). There is a range usually given in the filing, but these are just guidelines
and can be changed at any time (and usually up and at midnight before a hot IPO).

If you are daring, just pick a price above the range and put in an order and hope for the best.
If your bid is too low, no shares are available to match what people are asking, and you get nothing.
What you shouldn't do is put in a market price bid for an IPO. You would be pretty much assured
of paying the highest asking price and shortly after an IPO, the price usually drops. :-(

Stock transactions are trades, so a buy order has to be matched with a sell order. To facilitate
trading, stocks are usually handled by one or more "market makers" (usually the stock underwriter for
IPOs). The "market makers" usually own enough shares to put in sell orders to match random buys
and to net out transactions at the market price. This gives them some power to manipulate the price.

In an IPO, the sells come from either the underwriter, the company's investors, or the
subscription shares which you probably won't get because who would sell them to you at such a
low price :) (although it is possible)

The buy orders come from the gullible speculators trying to get IPO shares. To increase their odds
of getting shares, people put in high price/share limits. This of course bumps up the stock price
since the market makers look at the orders and of course pick the highest prices ;-)

Usually the day of a hot IPO, the people with shares hold on to them (don't sell) until they see
a few orders. The market maker can put in a few buy/sell orders to test the waters and then things
usually get going (and ususally up). There's a small chance if you put in an order during the
testing stage, the it will get traded but don't count on it! (everyone else has the same idea)

Unless you know what you are doing, or are just looking for token shares, I wouldn't suggest
planning on investing in an IPO.

Another S-1 summary on LWN

[Corbet]

We did a summary of our own of Red Hat's IPO filing for the Linux Weekly News. We looked at some different things than Salon did; check it out.

jon