Course Work Paper Facebook Inc Finance Essay

Introduction:

Initial public offering ( IPO ) , besides referred to a stock market launch ; is the procedure in which the companys portions are sold to the populace through the stock exchange market for the first clip in the class of its operations ( Gregoriou 2012 ) . This Course work will cover a Facebook Inc IPO procedure since it appears in NESDAQ, bespeak how the IPO affects its public presentation and analysis the Global IPO since 2001 with account for the most successful IPO in last decennary.

Facebook Inc.

Prior to Facebook traveling public it was being operated as a private company. As have been mentioned that this class work will discourse Facebook procedure of IPOs. Facebook Inc is societal media web that involve transnational people ( Claire 2008 ) . It was founded by an American citizen Mark Zuckerberg and some of his friends in 2003 and was referred to as Facemash ( Hoffman 2008 ) . In November 15th 2010, Facemash was renamed to Facebook Inc and so it acquired a sphere name of facebook.com from an American farm agency federation. The company ( Facebook ) was able to obtain $ 8.5 million worth of investing as it was turning up. This investing was subsequently sold to the populace for the ground of raising capital in the stock market. Facebook Inc which owned by Zuckerberg and operated as a private company before it goes public and so drifting its portions through conducted an IPO in February 2012 and subsequently started trading in the NESDAQ stock exchange market on May of the same twelvemonth. The company is good organized in footings of direction construction. Facebook Inc. is considered as one of the biggest company holding floated its portions through an IPO.

Global IPO Activities since 2001:

This subdivision will analyse the tendencies of IPO to find whether there has been a lessening or an addition in the IPOs activities during the last decennary. Harmonizing to the charts below that has been derived from Ernst & A ; Young, the tendencies for Global initial public offering has been on a fluctuating footing from 2001 to 2011. This means that IPO activities have been affected with several factors such as economic conditions and capital Market conditions ( wilmerhale,2012 ) . In 2001 the abroad IPO trade figure dropped by 114 % and the value fall down to $ 99 billion comparison to $ 210 billion in 2000. The undermentioned two old ages, the Global IPO volume norm were 829 IPO which was the lowest compared to the old decennary. However during the twelvemonth 2004 to 2007 there was an addition in the volume of IPO till it hit the highest point on 2007 to 2,014 IPO dingles. During the planetary fiscal crisis of 2008, the diminution was happened once more due to the consequence of planetary fiscal market and that leads to increase the insolvents among organisation and investor that increase their domestic ingestion as compared to investing and salvaging. During twelvemonth 2010, the planetary IPO was at its extremum one time more because the planetary fiscal establishments were improved. In the following twelvemonth, there was a European debt crisis which had influenced the planetary IPO tendency downward up to 66 % ( Ernest and immature 2012 ) . That later effect companies such as Facebook in early 2012 and has provided a phase for increasing in IPO volume to be the biggest in US history in the Technology sector.

Beginning: Ernst & A ; Young

Globally, the tendencies in IPOs have declined significantly during this decennary. This can be attributed to the economic systems of scope-hypothesis ( Biagio and Jong-Kun 2004 ) . This means that the economic system has been significantly affected in the class of this decennary taking to a diminution in sum of substantial growing of the smaller houses. Harmonizing to Wall Street Journal ( 2012 ) ‘the diminution in growing has farther affected the planetary economic system in footings of lessening in gross domestic production ( GDP ) every bit good as doing lower rates of employment ‘ . That will take the companies less profitableness and deficiency of analytical coverage by the investing Bankss, so will be lower rating of the stock monetary values of the above mentioned smaller houses in the public stock exchange markets doing possible investors off from purchasing the freshly floated portions every bit good as stock ( Williams 2012 ) .A In add-on, the cost of embarking into the public exchange market became unreasonable because the company had to incur the costs of drawn-out fiscal demands which were excessively big for them to keep.

The other facet which has lead to the diminution in IPOs is the fiscal crisis of 2007-2008 which lead to a diminution in the stock market operations ( Elliott 2012 ) .A During the fiscal crisis, smaller houses have been enormously affected doing them worried from doing public offering. Furthermore, the figure of investors good reduced dramatically due to the fact that the disposable income has besides been minimized. On the other manus, harmonizing to Bloomberg ( 2012 ) ‘in order to advance IPO growing, companies should concentrate on lower monetary values per portion so that investors can be motivated to buy the portions ‘ .

To clear up the analyses of the Global activity public presentation the paper will curtail the period to analyze informations as shows in the above charts in monthly bases from January 2010 to March 2012 that has been sourced from Ernest and Young to happen the correlativity between the value of IPO and the sum of capital raised besides, to analysis the grounds of limited IPO since the planetary fiscal crisis cause by Eurozone debt crisis. The chart illustrated clearly that there is a positive correlativity between the volume of IPO and the sum of capital raised. In contrast, between the selected periods there were about 2,804 companies went public with quarterly norm of 311 IPO which is below the mean compared with old three twelvemonth. This diminution in the figure of planetary IPOs is related to planetary economic conditions which have been already explained above. The other facet which was supposed as holding contributed to the limited in the figure of IPOs is the important instability coverage by investing Bankss and the extra cost associated with the initial public offering procedure. This meant that the investing Bankss could non concentrate on the smaller companies and hence let them through unjust signifiers of competition as compared to the larger corporations which had already established their several operations and therefore grosss ( Lerner and Hardymon 2011 ) .

Facebook IPO Performance

When Facebook Inc started merchandising its portions in the NESDAQ securities exchange, the portion volume was beyond 573 million portions during the first twenty-four hours of trading ( financeyahoo.com 2012 ) .A This was followed by a proficient job which had prevented arrangement of orders for the portions from traveling through. The proficient job resulted into an unexpected diminution in the monetary values of Facebook Inc portions which affect negatively on the company ‘s direction every bit good as the investors. This can be compared to the initial offering monetary value which was $ 38 per portion. On 18 May 2012 Facebook stock started steping in NESDAQ at $ 42.05 and fluctuated between $ 45 and $ 38 throughout the twenty-four hours it closed above its IPO monetary value at $ 38.23. After the 3rd twenty-four hours, the portions were traded at a depression of about $ 31 per portion and the stock had fallen aggressively in the hebdomads following the IPO ( Financeyahoo.com 2012 ) . Due to this unexpected diminution in portion monetary values, it subsequently lead to an probe on Facebook Inc which was aimed to screen out the causes of the problem confronting the diminution on the monetary value of portions from the initial offering monetary values. It was subsequently discovered that the investment bankers ; Morgan Stanley, JP Morgan and Goldman Sachs ; did in fact cut-down their forecasted net incomes in the center of the IPO advertizement to accommodate the demands of specific investors ( Blodget, May 2012 ) . In June of the same twelvemonth, the Company had lost over 47 % of its initial value and therefore led to the IPO being marked as corrupted ( The Guardian, 2012 ) .

Beginning: Saxo Bank

Harmonizing to the above line charts that has been derived from Saxo Bank, the Facebook portions monetary value have declined since it traded in NESDAC on May 2012. On 4th of September it reached the lowest portion monetary value to $ 17.73 and from that clip state subjecting this paper the portion monetary value have non exceed $ 26 which is traded under 31 % of initial Public portion monetary value. On the other manus, the highest trading volume of Facebook portions was on the first twenty-four hours of traded by about 573,576,400 portions which have non reached once more. From the form of the line chart which shows downward tendency and from the restriction of volume traded in NSEDAC market it concluded that the investor were anticipating to happen better public presentation in the market portion or in the fiscal statement but they do non. The Facebook investors have different outlooks sing the rating of Facebook. The most optimistic investors buy the IPO to acquire speedy or short-run addition from sale the stock after first yearss of tendency. ‘Over clip, as the discrepancy of sentiments lessenings, the fringy investor ‘s rating will meet towards the average rating, and its monetary value will fall ‘ every bit good as portion monetary value of Facebook ( Ritter and Welch, 2002, P 1821 ) .

The Procedure of IPO for Facebook:

IPO processes purposes to transform a in private owned company into a public company by merchandising subdivisions of its ownership as portions in the stock exchange market ( Laura 2002 ) . Companies use IPOs to lift capital and therefore to be expanded ; hence, the direction brings their attempt to change over the money investing made through possible investors in order to raise a important sum of capital needed for enlargement activities of the house.

The procedure of initial public offering involves making a portfolio over which possible investors can do determinations on which footings they desire their ain portions to be traded upon ( Mudambi 2006 ) . The company must supply a elaborate papers called prospectus to enable investors to hold a clear apprehension of the company activities ( Khurshed 2006 ) . Companies consult investing Bankss so that the bank can fix statement on assorted facets including fiscal place of the company and so move as an official investment banker agent. Once the company has listed its securities in a public exchange market, the initial fiscal financess goes to the private entity ( Goergen, Khurshed and Mudambi 2006 ) .

The above summery has provided an overview of Facebook Inc in footings of its laminitiss, direction and grounds behind the Company traveling public. Therefore, the followers will further discourse how the company went public and the procedures involved in. When Facebook Inc aimed to traveling public they started with the first of import measure which was naming an investing bank ( underwriter ) ( Mudambi 2012 ) . The investing bank that Facebook Inc selected was Morgan Stanley investing bank. The pick of Morgan Stanley, JP Morgan and Goldman Sachs investing Bankss were based on the fact that the investing Bankss were reasonably dependable Bankss which have a batch of broader experience and besides, they were conducted a batch of research tools in footings of expertness. The above mentioned investing Bankss acted as jobber agents for transporting out the links between the investors and the issuer ( Facebook Inc ) of the portions. Furthermore, the investing Bankss were to fix the prospectus which to be used as a benchmark for doing investing determination by possible investors.

After choosing the investing Bankss, the company filed a signifier known as the signifier S-1 ( Mudambi 2011 ) . This signifier must be filled and its blessing made by the Securities and Exchange Commission ( SEC ) of the federal authorities in the United States. Within a period of 2-3 hebdomads, there were drawn-out dialogue involved between the investing bank and the SEC. Through this measure on 9th of May 2012, Facebook investment bankers issue an amended IPO prospectus. However, the amended prospectus was misdirecting on page 57 in the manner that the investment bankers did non clear up the failing in the fiscal public presentation of Facebook Inc 2nd one-fourth and future appraisal ( Blodget, May 2012 ) . This may one of the grounds of the diminutions in the Facebook Inc IPO portion monetary values. On 18 May 2012, Facebook Inc made an initial offer of 460 million portions merchandising at $ 38 per portion in that really initial offer.

Successful IPO

This subdivision of paper will analysis the public presentation of most successful IPO since 2000. In fact, it is hard to find which successful IPOs because there is no specific stander in which can be measure the companies IPOs besides, no individual profile of a successful IPO company. However, the tabular array below shows figures of the best acting IPOs which were conducted by CNBC on the 5 best Initial public offering since 2000 indicates the followers.

Company

IPO Deal ( $ )

First twenty-four hours Return ( % )

China Life Insurance

2.87 Billion

– 52.38

Google

1.66 Billion

18.04

Facebook

2.74 Billion

-0.02

MasterCard

2.39 Billion

17.95

CNOOC

1.2 Billion

4.68

From the above tabular array the statistics shows that China Life Insurance Company had the largest trade in IPO than Facebook Inc. A farther analysis which was conducted in order to find which between the two companies has successfully launched its IPO. Sing the clip factor, this paper asserts that Facebook has been to a greater extent successful as compared to China Life Insurance Company. Taking into Consideration the clip value of money ; and the prevalent selling conditions this paper acknowledge that for China Life Insurance Company, the launch of the IPO was done before the fiscal crisis of 2008 whereas for Facebook the launch was done after the funding crises recovery schemes were put underway in that affair.

Decision:

In decision, the Global markets stock has been affected through crises since the beginning of this decennary. However, initial public offering comes in as a grantee oasis for investors and companies to roll up money from IPOs activities to derive net income by reinvest the excess money. In order to do a immense initial public offering benefit, companies should clearly measure the stock market conditions. The monetary values of portions are depend on demand and supply in the market stock besides, it determined by investors expectation ; whenever the investors have an optimistic believe it will upward the portion monetary values, but whenever the guess is pessimistic so the monetary value of portions will drop highly.