Case Study: The Facebook IPO Hype For A Rude Social Awakening

 following questions: 

An IPO marks a strategic milestone for a company. 


Explain the benefits and drawbacks of going public. 


What motivated Facebook to go public?


Facebook had several avenues to raise funds. Why was it relatively easier for Facebook to raise capital from the stock markets over debt? Was an IPO the most suitable choice?


On page 37 of the IPO prospectus, Facebook provides information on the ‘Use of proceeds’. What is your view on how Facebook planned to use the capital raised from the IPO? Should Facebook invest IPO proceeds in financial securities?

(iv) It is incorrect to state that Facebook raised $16 billion through its IPO. Why?

Facebook offered only Class A stock through the IPO. Who were the primary purchasers of these shares? How would new investors be affected by the dual-class share structure?

 

The underwriting investment bank takes on a central role in the IPO process. 


What are the key tasks executed by the underwriter? 


What are primary considerations when selecting an underwriter? 

(c) Often, multiple underwriters are involved. What are the main motivations for syndication? 

Assess Facebook’s issue price ($38) in light of the valuation data and parameters provided in the case within DCF (Discounted Cash Flow) and CCA (Comparable Companies Analysis) techniques. Briefly evaluate the valuation performed by Prof. Damodaran in Exhibit 17 of the case study.


The diagram below shows the performance of Facebook shares from May 2012 to November 2017. The first day of public trading of Facebook shares was 18 May 2012. Shares were sold in the IPO at an offer price of $38. More information on daily share price movements is available in the Excel file (FB shareprice).