New Issue: Definition, How It Works in Offerings, and Example

A new issue is a newly issued security that has not been previously traded on an exchange. New issues can be sold to the public through an initial public offering (IPO), a secondary offering, or a private placement.

**Initial public offering (IPO)**

An initial public offering (IPO) is the first time that a company's shares are offered for sale to the public. IPOs are typically conducted by investment banks, which underwrite the offering and help the company set a price for its shares. The price of an IPO is typically set at a premium to the company's pre-IPO valuation.

**Secondary offering**

A secondary offering is the sale of shares by existing shareholders. Secondary offerings can be conducted by the company itself or by an investment bank. The price of a secondary offering is typically set at a discount to the company's current share price.

**Private placement**

A private placement is the sale of shares to a select group of investors, such as institutional investors or accredited investors. Private placements are typically conducted by investment banks, which help the company find investors and structure the transaction. The price of a private placement is typically set at a discount to the company's current share price.

**How new issues work in offerings**

New issues can be used to raise capital for a variety of purposes, such as funding growth, acquisitions, or research and development. The process of issuing new shares can be complex and time-consuming, but it can also be a valuable way for companies to raise capital and access the public markets.

**Example of a new issue**

In 2021, Spotify Technology S.A. (NYSE: SPOT) completed its initial public offering (IPO). The company sold 166 million shares at a price of $132 per share, raising $21.8 billion in gross proceeds. Spotify's IPO was the largest in the technology sector since Alibaba Group Holding Limited's (NYSE: BABA) IPO in 2014.

Spotify's IPO was a success, and the company's shares have more than doubled in value since the offering. The company's success is a testament to the growing demand for streaming music services.