...| JetBlue Airways | | Valuation of an IPO Case Study | | JetBlue Airways | | Valuation of an IPO Case Study | 2014 Ivan McClure, Imtiaz Saboor, Vanessa Lopes, Gilberta Pjetri 2014 Ivan McClure, Imtiaz Saboor, Vanessa Lopes, Gilberta Pjetri TABLE OF CONTENTS * History * Advantages & Disadvantages of an IPO * IPO Process * Weighted Average Cost of Capital (WACC) * Similar Company Analysis * Discounted Cash Flow Analysis * Final Decision History David Neeleman, an experienced entrepreneur in airline startups, announced that JetBlue would bring “humanity back to air travel” on July 1999. He was convinced that his commitment and innovation would keep the planes full and moving despite the fact that 87 new-airline startups had failed in the last twenty years. An impressive new management team and growing group of investors shared Neeleman’s vision. JetBlue’s management team included David Barger, former vice president of Continental Airlines. Neeleman received strong support in funding from high-profile firms such as Weston Presidio Capital, Chase Capital Partners, and Quantum Industrial Partners, and quickly raised $130 million. Neeleman’s goal was to “fix everything that sucked about air travel”. His strategy was built on that goal as well providing the passengers with new aircraft, simple and low fares, leather seats, free Live TV at every seat, pre-assigned seating, and high quality customer service...
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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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...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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...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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...JetBlue Airways IPO Valuation Summary In July 1999, David Neeleman announced his plan to launch a new airline that would bring “ humanity back to air travel.” Despite the fact the airline industry had 87 new-airline failures in U.S. over the past 20 years. Neeleman’s plan convinced a group of investors and quickly raised $130 million from venture-capital community. This is the way JetBlue Airways established. With its strong capital base, JetBlue acquired a fleet of new Airbus A320 aircraft and focused on low-cost, point-to-point service to large metropolitan areas with high average fares or highly traveled markets that were underserved. This strategy brought JetBlue Airways an excellent position in the beginning phase. JetBlue Airways started to expand aggressively and remained profitable even after the terrorist attacks of September 2001 by insisting on its low-fare strategy. In April 2002, barely two years since established, JetBlue meet its initial public offering (IPO). The initial price range for JetBlue shares was $22 to $24, but facing sizable excess demand, the management increased the range as $25 to $26. After the whole process of IPO including SEC review and comments, roadshow, pricing, tombstone advertisements, JetBlue finally launched in NASDAQ at $27/share as initial pricing, closed at $45/share on the first day of trading. With the proper strategy in IPO process, JetBlue make a huge success on its IPO. Questions Why JetBlue Airways can still remain profitable...
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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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...What is an IPO and why is it such a big deal? Is this a good idea for JetBlue? Explain. When a privately held company makes its stock available to the general public for the first time on a securities exchange, this is known as the company’s Initial Public Offering (IPO). The IPO can consist of an initial issue of either debt or equity. The IPO process is also referred to as a private company “going public”. There are numerous benefits associated with going public. IPO benefits include enlarging and diversifying a company’s equity base, allowing cheaper access to capital, improving public image, attracting better management and employees through stock options, enabling transfer of company ownership through mergers/acquisitions, and providing increased financing opportunities (through equity, convertible debt, bank loans, etc.). IPO Process Executing an IPO is an extensive, time-consuming, and complicated process for the senior management team of a company. The main steps of the process are outlined below: • Hire an investment bank as an underwriter—the underwriters’ purpose is to negotiate ways to raise capital (by either debt or equity) and interface with the public. (In JetBlue’s case, the underwriter was Morgan Stanley.) • Begin to negotiate with the underwriters about all the required information that will be contained in the underwriting agreement. This information includes the amount of capital the company wants to raise, types of securities that will be issued...
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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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...JetBlue Airways Corporation (NASDAQ: JBLU) is an American low-cost airline with its main base John F. Kennedy International Airport, also in Queens. In 2001, JetBlue began a focus city operation at Long Beach Airport in Long Beach, California, and another at Boston's Logan International Airport, in 2004. It also has focus city operations at Fort Lauderdale – Hollywood International Airport and Orlando International Airport. The airline mainly serves destinations in the United States, along with flights to the Caribbean, The Bahamas, Bermuda, Colombia, Costa Rica, Dominican Republic, Jamaica, and Mexico. As of November 8, 2010 JetBlue serves 62 destinations in 21 states (including Puerto Rico), and eleven countries in the Caribbean and Latin America.[1] JetBlue also maintains a corporate office in Cottonwood Heights, Utah, a satellite office in Darien, Connecticut, and its Information Technology center in Garden City, New York. JetBlue is a non-union airline. JetBlue was one of only a few U.S. airlines that made a profit during the sharp downturn in airline travel following the September 11, 2001 attacks. Since its IPO on the NASDAQ stock exchange in 2002, JetBlue has become one of the most popular airline stocks in history and currently has about two billion dollars in market capitalization. Financial results were strong for the airline throughout the 2002–2004 years, and many analysts and journalists lauded the airline for its success. As of December 31, 2009 JetBlue Airways...
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...Mavis Lei JetBlue Airways IPO Valuation Introduction and Recommendation In July 1999, David Neeleman had announced his plan to launch a new airline company that would bring “ humanity back to air travel” despite the fact that U.S. airline industry had lot failures over the past 20 years. JetBlue had target its strategy and operating philosophy by offering customers low –fares tickets, high performance of customer service, providing new aircrafts and focused on point-to-point service to large metro areas. JetBlue’s operating strategy had produced the lowest cost per available-seat-per-mile of any major U.S. airline in 2001- 6.98 cents versus an industry average of 10.08 cents. JetBlue’s early success was often attributed to his extensive experience with airline start-ups. In 2002, Southwest airline was the pioneer in low-fare air travel. It was also the fourth-largest carrier in America and in the world. JetBlue remained profitable during the recession in the airline industry in the terrorist attacks of September 2001. To support the company’s growth, management was ready to raise additional capital through a public equity offering. With co-lead manager Morgan Stanley, the initial price range for JetBlue shares, was $22 to $24. The demand had excess the supply, 5.5 million of shares planned for the IPO while management had recently filed an increase in the IPO range ($25 to $26). The most recent IPOs among low-fare airlines were of non-U.S. carriers. Ryanair, WestJet...
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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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...technique for this case as this is an IPO and the company had no history whatsoever that we can rely on except by using its similar competitor statistics and assumptions to value Jetblue. In conclusion, we have calculated that using Free Cash Flow technique, the share price is $57 and therefore the current range of $25 to $27 is underpriced and that they should increase it to $56 to $58. Case We can use several valuation techniques to value JetBlue’s shares which are the Free Cash Flow to Equity (FCFE) method, Free Cash Flow to Firm (FCFF) method and relative valuation techniques such as price earnings ratio (P/E), EBITDA multiple, price cash flow rations (P/CF), price book value ratios (P/Bv) and price sales ratio. An Initial Public Offering is when a company initially offers shares of stocks to the public, which is also known as going public. An IPO is the first time the owners of the company give up part of that ownership to stockholders. The advantages of Initial Public Offering are associated with liquidity, monitoring, credibility, access to markets and to be able to raise capital in the future. On the other hand, the disadvantages are appropriate timing, control/investor relations, reporting obligations/disclosure and it can be expensive. It is said that the IPO is the exciting time for a company as it means that it has become successful enough to require much more capital to for future growth. Theoritically, it seems to be a bad idea to conduct an IPO after negative...
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...Introduction: JetBlue is a low-fare airline established in 1999 by David Neeleman, a veteran in airline start-up. By adopting a high frequency, short-haul, point to point strategy that leverage on technology advantage, together with an experience management board. In April 2002, JetBlue Management decided to price the IPO of JetBlue at despite that it was during one of the worst periods in airline history. The IPO was initially priced at $22-24 per share, it was later adjusted to $25 to $26 per share due to excessive demand. On the first day of trading in April 2002, shares of JetBlue (JBLU) closed at $45, up $18 from the offer price of $27, a gain of 67% in one day. On August 1, 2013 JBLU closed at $6.59. The decision to go public As noted in the JetBlue Prospectus, the main purpose for the IPO is for working capital and capital expenditure. Hence, the decision to go public can be seen as a financing decision. Besides going public, the company may raise equity by private placement or through investment bankers and underwriters. However, there are several reasons to go public. First, going public is able to raise large amount of capital that may not be possible in other means. This is especially important as Airline industry is a capital-intensive industry and companies in their initial years has high asset growth. The total assets of JetBlue almost doubled from 2000 to 2001. Furthermore, going public is able to increase credibility, this is vital for an airline...
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