...University of Law and Economics Case Study 26 “JetBlue Airways IPO Valuation” Lecturer: Kou Lim Hong Prepared By: 1. Ms. Khoun Davy 2. Ms. Khoun Dalin 3. Ms. Chiem Sothana 4. Mr. Soksithika 5. Mr. Oag Sothearith 6. Mr. Mov Vandara MFM, Group 2 team 6 2011-2012 Outline of The Presentation I. II. Introduction of Case Study Main Problem III. Literature Review IV. Case analysis V. Conclusion Outline of The Presentation I. II. Introduction of Case Study Main Problem III. Literature Review IV. Case analysis V. Conclusion Introduction of Case Study JetBlue Airway Background JetBlue airways are a low cost airline established in July 1999 by David Neeleman. David Neeleman was experienced in the operations of airline and start up airlines. The airline was to provide new levels of service in the airline travel industry, concentrating on customer service and low fares. Introduction of Case Study JetBlue Airway Background David Neeleman plan was to commit to innovation in people, policies and technology to keep the companies planes full and thus the company profitable. To ensure this goal and the company’s future David Neeleman assembled and impressive management team and group of investors. JetBlue’s COO was to be David Barger ex-vice president of Continental Airlines. John Owen who was executive vice-president and treasurer of Southwest Airlines agreed to become JetBlue’s CFO. Introduction of Case Study JetBlue Airway Background David Neeleman...
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...Case Study 1: JetBlue Airways IPO Valuation 08 Fall AFF5300 Case Studies in Finance- March 2013 Executive summary This report examines the decision of JetBlue management to price the initial public offering (IPO) of JetBlue Stock on the April 2002, a few months after the terrorist attack in September, 2001. First, the paper provided a brief introduction to JetBlue Airways and its industry. This paper revealed JetBlue’s innovative strategy and the associated strong financial performance over its initial two year. It followed by, a discussion on the advantages and disadvantages of going public (IPO) for JetBlue. The paper later provided an insight analysis of the company comparison multiples valuations (EBIT and PE multiples valuations) and the discounted cash flows to value JetBlue’s share price. It reached a conclusion that JetBlue Airways IPO should be in a range of $25 to $26 per share. By: Tam Huynh (24675512) Contents 1.0 Introduction 2 2.0 The Airline Industry and JetBlue 2 3.0 JetBlue’s Going Public 2 3.1 The Advantages of going public 3 3.2 The Disadvantage 3 4.0 JetBlue’s Valuation 3 4.1 The comparable Companies Analysis 3 4.1.1 P/E Multiple 3 4.1.2 EBIT Multiple 4 4.2 Discounted Cash Flow Analysis 5 4.2.1 Weighted Average Cost of Capital 5 4.2.2 Discounted Cash Flow Share Price Valuation 5 5.0 Recommendations and Conclusions 5 References 7 1.0 Introduction The terrorist attacks of September 2011 had a severe...
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...JETBLUE AIRWAYS IPO VALUATION Teaching Note This case examines the April 2002, decision of JetBlue management to price the initial public offering of JetBlue stock during one of the worst periods in airline history. The case outlines JetBlue’s innovative strategy and the associated strong financial performance over its initial two years. Students are invited to value the stock and take a position on whether the current $25–$26 per share filing range is appropriate. The case is designed to showcase corporate valuation using discounted cash flow and peer-company market multiples. The epilogue details the 67 percent first-day rise in JetBlue stock from the $27 offer price. With such a backdrop, students are exposed to one of the well-known finance anomalies—the IPO underpricing phenomenon—and are invited to critically discuss various proposed explanations. The case provides opportunities for the instructor to develop any of the following teaching objectives, • Review the institutional aspects of the equity issuance transaction. • Explore the costs and benefits associated with public share offerings. • Develop an appreciation for the challenges of valuing unseasoned firms. • Hone corporate valuation skills, particularly using market multiples. • Evaluate the received explanations of various finance anomalies, such as the IPO underpricing phenomenon. Study Questions 1. What are the advantages and disadvantages...
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...Memorandum TO: FROM: DATE: September, 27 2013 RE: One-Page Memo on JetBlue Case Study The purpose of this memorandum is to discuss the JetBlue case study, and review my answers to the specified questions. I will elaborate as to which price I believe JetBlue should choose for their initial public offering (IPO), and why JetBlue should choose that price. The first step in determining JetBlue’s IPO price is analyzing specific ratios of publicly traded competitors in JetBlue’s industry. I analyzed the Price-to-Earnings multiples, Cash Flow multiples, Total Assets multiples, and the Revenue multiples of the direct competitors of JetBlue. JetBlue’s direct competitors include; AirTran, Alaska Air, American West, MidWest, and Southwest. JetBlue’s relative stock prices are as follows: |JetBlue's Stock Prices Implied By Different Multiples | |Airline |P/E Multiple |CF Multiple |TA Multiple |Revenue Multiple | |AirTran |$36.41 |$23.71 |$45.20 |$9.24 | |Alaska Air |$47.23 |$27.64 |$30.69 |$8.92 | |American West |$29.04 |$30.82 |$26.24 |$8.39 | |MidWest |-$15.60 |-$11.42 |$39...
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...Introduction: JetBlue is planned to establish by David Neeleman in July 1999. Although the terrorist attacks of 9/11 made the huge loss of the whole airline industry, JetBlue airways try to publish its own IPO after 2 years of profitable operation in 2002, This case study is summarizing the step to publish the IPO. Following this, it will discuss the disadvantage and advantage to publish the IPO and use the financial data to evaluate the price is suit for the first publish. In this case, there are three different share valuation methods: P/E multiple (comparison pricing); EBIT multiple (comparison pricing) and discounted free cash flow (fundamental pricing). Analysis the advantage and disadvantage of the IPO JetBlue has been successful to duplicate Southwest’s strategy which provides high aircraft utilization and low fare. The cost of per available-seat-mile is the lowest of the major U.S. airline in 2001 which is 6.98 cent compare with the industry average of 10.08 cents. On the other hand, JetBlue provides comfortable and convenient travel experience such as leather seats and free live TV. After these successful operations, JetBlue needed to raise capital use IPO for the further expansion. Although the non U.S. low-fare airlines have been publish IOP and the return is reasonable, there still have disadvantages to do this. Advantages: 1 For the financial reason, to issue IPO can increase the liquidity. Once to issue the IPO, JetBlue can get the money directly from investors...
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...JetBlue Case Study Analysis JetBlue Airways Corporation Overview JetBlue Airways Corporation is an American low-fare airline, which headquartered in the Long Island City near the New York City. Its main base is John F. Kennedy International Airport. Basically, the airline mainly serves destinations in the United States, as well as many Latin American countries. As of October 2013, JetBlue serves 84 destinations in multiple countries. Low-fare airline is an airline that generally with a lower operating cost structure. In many people’s view, low-are airline also with has low ticket prices and limited services. However, JetBlue is a low-fare airline corporation with a goal of fixing everything that “sucked” about airline travel. Its passengers could get unique flying experience by providing new aircraft, simple and low fare, leather seats, free LiveTV at every seat, preassigned seating, reliable performance, and high-quality customer service. JetBlue Airways Corporation David Neeleman, the starter of JetBlue, had raised funds of $130 million for this brilliant company at the beginning. Even JetBlue has strong support from venture-capital community, it also had the intent to go public in April 2002. At that time, the whole industry was still in recession due to 9/11 attack. A company sells stock shares to the general public for the first time via security exchange, it is Initial public offering (IPO). Before IPO, there is no general shareholders in the company. After IPO,...
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...[pic] IPO Valuation By: Ryan DeCoudres & Jose Alessandro de Vasconcelos March 24, 2009 TABLE OF CONTENTS INTRODUCTION 2 COMPANY AND INDUSTRY BACKGROUND 3 GOING PUBLIC 4 THE IPO PROCESS 5 JETBLUE VALUATION 10 RECOMMENDATION 12 WHAT HAPPENED 12 REFERENCES 15 INTRODUCTION Following the terrorist attacks of 9/11, the airline industry was in the doldrums. Many of the largest carriers in the nation had filed for bankruptcy protection and were asking the federal government for help so they could survive. Certainly few people at this time considered the airline industry to be an extremely profitable venture, but where others saw despair, David Neeleman, CEO and founder of JetBlue Airways, saw opportunity. In 2002, after 2 years of profitable operations and less than a year after the attacks that shook the industry to its core, JetBlue Airways had its Initial Public Offering (IPO) and went public. This case study outlines the IPO underwriting process and uses JetBlue as an example to describe the steps throughout the way. It also asks the analyst to come up with a valuation for this IPO, based on the financial and non-financial data presented. In the following pages, we will discuss the pros and cons of going public, the IPO process itself, and walk through the calculations that led us to our...
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...JetBlue IPO – Case Study IPO Process An initial public offering (IPO) is selling traded equity to the public on a securities exchange for the first time. The initial public offerings are used by companied to raise additional capital, and to transform from a private company into a public company. The IPO process is as follows. 1. Selecting an underwriter 2. Due diligence 3. Preliminary registration 4. SEC review 5. Road show and book building 6. The offering settlement There are many advantages and disadvantages of going public through an IPO. Advantages Increased capital from public offering * Increased liquidity * Public market creates shareholders’ value * Facilitates merger & acquisition – shares can be used instead of cash * Accelerates company’s growth * Increased recognition * Employee stock options are valuable Disadvantages * Costs and time demands – costs associated with reporting could be significant and more time needed for statements preparations. * Information disclosure – information may be visible to competitors. * Financial reporting and administration burdens of complying with SEC * Control – managements may experience loss of control. * Increased risk of shareholder litigation * Increased restrictions The issue of JetBlue The issue is that there is a debate among the JetBlue management about the appropriate pricing of the IPO. The analysts reported that demand exceeded supply...
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...FEU MBA 209 Case Study Jetblue Airways: A Cadre of New Managers Takes Control Case Background JetBlue is a low-cost domestic airline in the United States following a rather interesting combination of ‘low-cost and differentiation’ as its strategy. From its inception in 1998, the airline grew to become the 11th largest player in the airline industry in a short span of 6 years. It had been the only other airline apart from Southwest airlines, to have been profitable during the aftermath of the September 11, 2001 attacks on World Trade Center, and at a time when the entire airline industry was experiencing losses. In 2001, JetBlue planned to launch an IPO to fund its expansion plans. The IPO had to be postponed in light of the terrorist attacks, but JetBlue continued with its expansion plans using its share of the $15 billion bailout ($5 billion in direct compensation and another $10 billion in loan guarantees) the US government granted to the aviation industry, and a fresh infusion of funds from its original investors. Jet Blue is facing the same problem as nearly any company in any industry; that of competition. The most important task at hand for the company of Jet Blue is to maintain the quality of their product so as to ensure that they are able to garner customers, their product being superior to that of their competition. Thus far, Jet Blue has done this quite well, establishing a name for themselves as a low-cost provider of an exemplary air-travel experience...
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...HEAVY EDIT JetBlue Airlines: Getting “Blue” again?* JetBlue posted a net income $97 million in 2010. The airline continues to pursue its goal of becoming ―the Americas‘ Favorite Airline‖ and aims attainting positive free cash flow and long term sustainable growth while maintaining adequate liquidity position. Financially, the airline was far better than after the Valentine day fiasco in February 2007 and subsequent loss of $84 million in 2008. It focuses on controlling costs, maximizing unit revenues, managing capital expenditures and aims at achieving disciplined growth (see Exhibit 1).1 However, in the recent years, JetBlue appears to be moving away from its core strategy, in quite interesting ways, of being a low-cost player providing the distinctive ―JetBlue experience.‖ In its efforts to boost revenues, the airline began charging $10 to $20 for seats with extra legroom, doubled its ticket-change fee to $100, and introduced refundable tickets that cost more than nonrefundable ones. Further, the airline began charging $7 for a pillow-and-blanket kit, an amenity usually provided free of charge by other airlines.2 Breaking another low-cost rule, JetBlue moved away from ticket sales through its own Web site and signed up with travel agencies and the Galileo and Sabre global distribution systems in August 2006 and with online travel agencies such as Orbitz in January 2008. Further, it sold approximately 42.6 million shares of common stock to Deutsche Lufthansa, the German...
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...JetBlue Case Study Just 2 years after its inception in April 2002, JetBlue Airways remained profitable and was growing aggressively despite the terrorist attacks that occurred in September 2001. Together with co-lead manager Morgan Stanley, the JetBlue board was ready to set a price range, which they initially decided should be $22-$24, but facing excess demand, they increased the price range from $25 to $26. However, most of the group anticipated huge demand. In 1999, CEO David Neeleman announced his business plan and was convinced it would be successful on account of his strong commitment to innovation in people, policies, and technology. He attracted David Barger, former VP of Continental Airlines, as JetBlue’s president and COO and John Owen, former VP and treasurer of Southwest Airlines, as JetBlue’s CFO. He had strong support by many, especially the venture-capital community. He swiftly raised $130 million in funding from high profile firms such as Weston Presidio Capital, Chase Capital Partners, and Quantum Industrial Partners. The main problem facing JetBlue managers was the pricing policy. Morgan Stanley reported that the deal involved a severe excess of demand. Given this fact, some thought that the current pricing range was too low and that by raising the price, it would instill confidence into the market. In contrast, some thought raising the price would endanger the success of the deal. Management thought a successful offering involved not only raising short-term...
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...JetBlue case study Strategic Objectives A strategic objective of an organization is a broadly defined objective which the company has to reach to make its strategy success. We can distinguish eight major groups of these goals: Financial resources Physical resources, Human resources, Market standing, Innovation, Productivity, Profit requirements and Social responsibility.1 Although JetBlue had some issues during their operations they mostly succeeded in reaching its strategic goals. In 1998 as the company was established by Neeleman, he raised 160 million dollars of capital from investors like Western Presidio Capital. This was a really strong start for a new firm in the aviation industry. In 2001, just three years after the company’s start, they were growing so rapidly that the possibility of an IPO came into consideration to fund its expansion plans. After the terrorist attacks on 11/9 it had to be postponed. The U.S government granted the Aviation industry a $15 billion bailout and JetBlue also gained its part from it so they could go on with their expansion plans.2 After the events a lot of airliners went bankrupt as the people were afraid of flying. JetBlue quickly identified those routes which were abandoned by the bankrupted firms, so for example they started to fly every day on the week to Florida. This helped them to stay and succeed on the market. As an innovation JetBlue always used new aircrafts and flew to airports which were considered...
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...techniques discussed in this course are heavily used in practice, which are helpful not only to financial managers in modern corporations but also to investors in financial markets. Introduction 2 Textbook and Course Materials Prescribed textbook: Damodaran, A. (2012), Investment Valuation, Wiley & Sons (3rd University edition) Lecture notes: available on the course Wattle site Valuation cases: Darden Business School cases to be distributed in class Recommended reading: Ross, S., Westerfield, R., and Jaffe, J., (2013) Corporate Finance. McGraw-Hill (10th edition) (RWJ) Study Groups All assignments and case reports are group-based. Form your study team by the end of week 2, each consisting 4 to 6 students. Students attendance is required for case discussions. A 2% penalty applies to each absence. At the conclusion of this course, each student will submit a confidential assessment of each group member’s overall contribution to the group’s work and performance. Introduction 3 Introduction 4 Course Assessment Assessment Summary Two assignments: Two case reports: Final exam: 30% 30% 40% Course Assessment Usual Grade Distribution High Distinction (HD) Distinction (D) Credit (CR) Pass (P) Fail (N) 80 – 100 70 – 79 60 – 69 50 – 59 0 – 49 Scaling...
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...edition of Barron’s, a tag line in the “Marketweek” column reads, “Airlines and other money-losing companies.” 1 This tag line reflects the intense rivalry and the massive financial losses undergone in the airline industry in the past few months due to the economic recession and the 9/11 terrorists attacks. Amidst this airline industry malaise, however, JetBlue Airlines (”JetBlue”) launched service in February 2000 and generated over $41 million in profits in 2001.2 In this report, we explore the question, “Is JetBlue’s strategy conducive to sustaining profitability?” The answer is a resounding “Yes”. At the one thousand foot level, we believe that even in the unattractive airline industry in which companies try to differentiate on qualities other than price -- but in the end often compete on price -- JetBlue has a unique formula for success. It competes head-to-head with the majors, particularly Southwest Airlines (“Southwest”), on price, cost structure, features, and customer satisfaction. However, the company has carved a niche in which a “live and let live” strategy should prevail. Indeed, a rival attempting to bankrupt JetBlue may well cause more harm to itself than to its target. Airline Industry Overview Background At one time the airline industry resembled the utility industry to the extent that regulators determined what firms could and could not do. In the 1970s, a time of runaway inflation, and rising unemployment, many agreed that something had to change. In 1978 Congress...
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...ROSETTA STONE: pricing the 2009 IPO Teaching Note This case examines the April 2009 decision of Rosetta Stone management to price the initial public offering of Rosetta Stone stock during one of the most difficult periods in capital-raising history. The case outlines Rosetta Stone’s unique language-learning strategy and its associated strong financial performance. Students are invited to value the stock and take a position on whether the current $15 to $17 per share filing range is appropriate. The case is designed to showcase corporate valuation using discounted cash flow and peer-company market multiples. The epilogue details the 40% first-day rise in Rosetta Stone stock from the $18 offer price. With this backdrop, students are exposed to a well-known finance anomaly—the IPO underpricing phenomenon—and are invited to critically discuss various proposed explanations. The case provides opportunities for the instructor to develop any of the following teaching objectives: * Review the institutional aspects of the equity issuance transaction. * Explore the costs and benefits associated with public share offerings. * Develop an appreciation for the challenges of valuing unseasoned firms. * Hone corporate valuation skills, particularly using market multiples. * Evaluate the received explanations of various finance anomalies, such as the IPO underpricing phenomenon. Study Questions 1. What are the advantages and disadvantages...
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