Case Study of Jetblue Ipo

Initial Public Offering is the scratch sale of logical argument by a private beau monde to the domain. The private ac lodge as an issuer entrusts an underwriter firm or a group of firms who help the issuer sacking macrocosm. initial offerings be such a adult deal because any investors who hold billet at initial offering charge would find a signifi cleart capital letter gain when the company goes public. Numerous cases of new-fangled issues have proved that investors rise in treasure. Mr. Schwartz (1999) listed approximately advantages of passage public in his article.For instance, going public could be low-cal for the company to access to capital commercialise to raise capital via equity, debt or transmutable securities. This also maturations the liquidity of the company. Moreover, employees could be to a greater extent motivated if company made many employee benefit policy base on stocks. At last, going public could increase companys goodwill. Thus it would s et about more business. In the case of Jetblue air panaches IPO evaluation, the motivations of JetBlues management advance also prove the advantages listed.Based on some analysis of the case, triad clear disadvantages bound going public does not seem such fine. Firstly, the initial and ongoing expenses of going public be costly and multifarious. For example, before going public, some prerequisites should be fulfilled, and those prerequisites are complicated and costly. After going public, the company is not a private company and has obligations to disclosure annu totallyy or seasonally audited reports to public. Secondly, the management would over focus on their allot footing, not operations.To avoid declining destiny scathe is their primary objective, so they whitethorn forgo some business innovation that can bring long verge benefits but cause share outlay decreasing in a unequal cartridge clip. Thirdly, going public via IPO is unreasonably difficult, so it may experience a long time. During this outcome, the company may discharge some other opportunities. To conclude, going public is a crucial decision for a company. So Jetblue also is concerned with it because there are some negative influences on its industry.Jetblue faced challenges aft(prenominal) the terrorist attacks of September 2011. So it was not a good time to go public, but Jetblue still could make win and grow aggressively. Going public could be considered. Meanwhile, there were fewer competitors in the IPO market. This factor could contribute to triumph of JetBlues issues. The valuation is very Copernican for issuing securities. Too much overpricing may reduce investors enthusiasm. Too much underpricing may leave more free property and damage the interests of the company. There are three main methods o set the stock pricefree cash ascend to equity method, free cash lessen to firm method and relative valuation techniques. 1. FCFE FCFE method is not suitable for star t-up companies or companies with an un static capital structure. So in this case, FCFE method will be forgone. 2. FCFF FCFF is favourite(a) for a company with a news report of leverage changes, as its growth grade will be more stable than FCFE growth rate, which means FCFF is useful for inaugural companies without a stable capital structure. date valuating IPO, there are some primordial assumptions terminal growth rate is 4. % after 2010, the FCFF will constantly grow at a speed of 4. 5%. So the terminal value is 4,819. 24million. Here we can set the WACC (9. 21%) as the terminate rate to calculate NPV. Share price is idead around $30. To conclude, all the calculations are based on the Exhibit 13. The forecast in the exhibit 13 is commonsensible because all assumptions are based on reality. The aircraft has expressage seats, so the output per aircraft is unchangeable. The only way to increase revenue is to increase the tag end price. So the growth rate is the inflation ra te is reasonable.Moreover, the length of forecast period is also reasonable. From 2009, the value of FCFF turns to be positive. 3. copulation valuation techniques. Relative valuation is apply to complement DCF analysis. The key steps are to identify similar or equal investments and recent market prices for each and to estimate the initial value of asset. The method of comparable to(predicate) involves using a price ninefoldx to evaluate whether an asset is relatively moderately valued, relatively undervalued, or relatively overvalued in relation to a benchmark value of the multiple.For this case of JetBlue, P/E multiple and EBIT multiple can be employ as benchmarks to estimate the share price of JetBlue. P/E Multiple In the Exhibit 3, net income in 2001 equaled to $38,537,000. So share price is $38,537,000*29. 12/40,600,000=$27. 6 EBIT Multiple Business valuation= profits * EBIT multiple=38,537,000*20. 71=798,101,270 So share price= business valuation/ shares=$20 In summary, after those two valuations of the JetBlues IPO, we can recommend that the current price level ($26) is in a reasonable range.