Jetblue Ipo Evaluation

Assignment

Try to answer the following questions:

1. Is it the right time for JetBlue(JB) to go public? Should
probably postpone the listing process and if so, why?

• JB remained profitable and growing

• very young company(2 years) but very strong and experienced founders and management

• investors looking at the company, they see a strong mgmt.
• They understand the company earning will be much higher as projected

• has a projected profit increase by 87%
• for the 5.5 mill. Shares , it is believed that there are very high demand

In general the answer for the above question can be summarized by the advantages and disadvantages of going public for JB.

• Advantages:

• JB has good and experienced management, which keeps it growing.
• normal IPO require 3 months, but JB took around 100 days, this indicates that they are well prepared.
• They already established a strong brand, which identified as safe, reliable, low-fare airline focused on customer service
• well positioned in New York, the nations largest travel market, with 21million potential customers.
• Low priced shares
• competitions – low fair industry

• JB has 6.9cent/mile, the industry have an average of 10.08cent, this will help in increasing the earnings.

• Disadvantages:

• The challenges US airlines industry facing after the 2001 terrorist attack
• Loss of control or Possibility of overtaking
• underpricing,
• competition with other airlines, like Southwest, ATA, America, AirTran
• there are disadvantageous:
• pressure on the mgmt to increase the company earnings, quarter after quarter.

From external factors considering the terrorist attack was not too far from the memory of the public and investors, there might be no interest in investing in airline industry. However from the above point the advantageous out weight the disadvantageous. 

2. How do you judge the sentiment around the JetBlue IPO?
Is the market “hot”?

• the mgmt of JB believed  that they have seizable excess demand for the 5.5 million shares. Which indicates the market is hot.
• Low fair business model was gaining momentum in the US airlines industry, which will give a promising future for companies like JB.

3. How do you consider the “size” (i.e. number of shares
offered) of the offer?

• They have a 5.5 million shares, however the mgmt has a fear that it will even be a blow-out demand. And start considering to raise the price for each share to $25 to $26.

4. What are the real goals of JetBlue? Why is it going
public? How can you support your thesis?

• Basically to support growth trajectory and offset portfolio(diversifying the ownership) losses by their venture capital investors
• The experienced mgmt is also ready to raise capital – with public equity offering. Raising capital from equity is much better than debt, which require to pay the interests.

5. How do you consider the level of the IPO offer price? Is
there any margin to further increase it or it has been a
mistake to revise it upward from 22$ to 24$? In order to
answer this question, please, consider

1. The implicit valuation (relative to the industry) of the multiples
2. The value emerging from a DCF analysis (based on case estimates)
3. The value coming from a DCF analysis (based on your estimates)
4. Qualitative considerations, such as the probability of the IPO being stabilized.

To deal with the IPO offer price, there will be different factors which potentially define the price tag. Being a leader in technology and having a strong mgmt, affect the IPO's, what price should they charge. To value the IPO, basically there are two strategies.