Initial Public Offerings (IPOs) can give retail investors access to some of the world’s most exciting companies for the first time, opening the door to businesses that were once reserved for venture capital and private equity investors.
But while the opportunity can be appealing, it’s not uncommon for newly listed stocks to experience sharp price swings in the months after their initial public offering. Investors should focus on the underlying business and not on predicting short-term price moves.
This article isn’t personal advice. If you’re not sure an investment is right for you, seek advice. Investments and any income from them will rise and fall in value, so you could get back less than you invest. Ratios also shouldn’t be looked at on their own.
Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.
IPO day is a bumpy ride
The chart below highlights just how volatile IPO investing can be in the early stages. This looks at returns over the first 5 years after the IPO, assuming the initial investment was made at the IPO offer price.
While some companies surged immediately after listing and others struggled out of the gate, the long-term outcomes often looked very different from the initial market reaction. Short-term share price moves can be noisy, emotional and heavily driven by sentiment, while the underlying strength of the business tends to matter far more over time.
Airbnb
Airbnb’s stock market debut in December 2020 was one of the most explosive IPO launches in recent memory. Shares more than doubled on their first day of trading as investors rushed to buy into a business that had already reshaped the global travel market.
The timing was remarkable. Just months earlier, the pandemic had brought international travel to a standstill and dealt a heavy blow to revenue, raising questions about the company’s future. But investors quickly looked beyond the short-term disruption and focused on the longer-term shift in how people travel, work and book accommodation.
The early rally also highlighted one of the biggest challenges with IPO investing. By the time many retail investors gained access to the shares, the valuation had already surged far beyond the initial listing price. That created plenty of volatility in the months that followed, with the stock swinging sharply as markets tried to balance huge growth expectations against rising interest rates and a slowing economy.
Underneath the share price moves, though, Airbnb continued building one of the strongest consumer internet platforms in the world. The company operates a global marketplace, connecting travellers with hosts offering everything from spare rooms to luxury villas. Unlike traditional hotel groups, Airbnb doesn’t own the underlying properties, giving it an asset-light model with attractive long-term profit potential.
The company has also shown improving discipline on costs and profitability, something investors increasingly value after years where growth was prioritised above all else. But today’s investors haven't been willing to pay the same valuation multiple as in times past, with questions about the next leg of growth now front and centre.
Still, Airbnb is a good reminder that while IPO excitement can create sharp short-term moves, the long-term outcome still depends on whether the underlying business can continue to strengthen its position over time.
Snowflake
Snowflake arrived on the public market in 2020 surrounded by enormous hype. The cloud data company delivered one of the biggest software IPOs ever, with shares more than doubling on their first trading day as investors piled into one of the market’s fastest-growing technology themes. Demand was so strong that Warren Buffett’s Berkshire Hathaway even invested ahead of the listing, adding further attention to an already closely watched float.
The excitement reflected investor appetite for cloud computing and data infrastructure businesses, particularly those seen as critical to the growing use of artificial intelligence (AI). But investors were immediately exposed to huge valuation expectations, leaving the stock vulnerable to swings in sentiment.
That volatility arrived quickly. As interest rates rose and technology valuations came under pressure in 2022, Snowflake’s shares fell sharply from their highs, even as the company continued to deliver strong revenue growth. It became a clear example of how short-term share price performance and long-term business quality do not always move together.
At its core, Snowflake helps businesses store, organise and analyse vast amounts of data across different cloud providers. That may sound technical, but the basic idea is simple. Companies increasingly rely on data to make decisions, improve operations and develop AI tools. And Snowflake provides the infrastructure that helps make that possible.
The company remains heavily tied to some of the biggest themes in technology, particularly AI adoption and enterprise digital transformation. Snowflake has continued growing its customer base and expanding relationships with large businesses. Though competition in cloud infrastructure remains intense.
Snowflake highlights both sides of IPO investing. Strong companies can generate huge excitement when they list, but even high-quality businesses can experience painful swings when expectations become stretched. The long-term investment case often matters far more than the first few months of trading.
Meta
Meta’s 2012 IPO is often remembered as one of the most disappointing major market debuts of the modern era. Technical problems at the Nasdaq exchange disrupted trading, investors questioned whether the company could successfully shift its advertising business onto mobile phones and concerns quickly emerged that the valuation had been too ambitious. Within months of listing, the shares had fallen by more than 50%.
At the time, many investors saw the weak performance as proof that the social media boom had peaked. But in hindsight, the early struggles said far more about short-term market sentiment than the long-term strength of the business.
Meta, then Facebook, already owned one of the largest digital advertising platforms in the world. Its core social network had built an enormous global audience, giving advertisers direct access to billions of users. The real question was whether the company could successfully monetise mobile usage as consumers increasingly shifted away from desktop computers.
The answer turned out to be yes. Over the following decade, Meta transformed mobile advertising, expanded through acquisitions like Instagram and WhatsApp, and became a highly cash-generative company. More recently, the company has also emerged as a major tech player, investing heavily in infrastructure and AI.
That doesn’t mean the journey has been smooth. Meta has faced repeated concerns around privacy, regulation, competition and heavy spending on moonshot ideas. The shares have also experienced several periods of sharp volatility, including a major sell-off from late 2021 into 2022 as advertising markets weakened and costs rose.
Meta remains one of the clearest examples of why investors should avoid focusing too heavily on an IPO’s short-term performance. The company’s difficult market debut ultimately had little bearing on the long-term investment case.
The author holds shares in Meta
Uber
Uber’s 2019 IPO was supposed to be one of the defining technology listings of the decade. The ride-hailing giant had transformed urban transport across the world, built a globally recognised brand and attracted enormous backing from private investors before eventually coming to market. But despite the anticipation, the stock struggled almost immediately.
Investors were concerned about mounting losses, regulatory risks and fierce competition, particularly in food delivery and international ride-sharing markets. Questions also surrounded whether Uber could ever become consistently profitable, with critics arguing the company had prioritised growth at the expense of sustainable returns. The shares fell below their IPO price shortly after launch, adding Uber to a growing list of highly anticipated tech floats that failed to deliver an immediate payoff for investors.
Yet the business itself continued evolving.
Uber steadily expanded beyond ridesharing into food delivery, freight and logistics, creating a broader platform built around transport and local commerce. The pandemic created fresh uncertainty as travel demand collapsed, but it also accelerated growth in Uber Eats, helping diversify the business further.
Over time, investors began focusing less on headline losses and more on improving operational discipline. Uber introduced tighter cost controls, improved efficiency and benefited from growing scale across its network. More recently, profitability and cash generation have become far more central to the investment story than pure customer growth.
Today, Uber is a mature global platform business rather than a speculative start-up. Its ability to strengthen margins and generate cash has helped shift investor perception since the IPO, but the company still faces regulatory and competitive pressures to this day.
Uber’s market debut is a useful reminder that weak early trading does not necessarily mean the underlying business lacks quality. IPOs are often driven by emotion, hype and shifting sentiment in the short term, while the real long-term outcome depends on whether the company can keep building a stronger and more durable business over time.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss. Yields are variable and not guaranteed.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.