Quality Coursework Paper Facebook Inc Example for Free

Introduction:

Initial public offering (IPO), also referred to a stock market launch; is the process in which the companys shares are sold to the public through the stock exchange market for the first time in the course of its operations (Gregoriou 2012). This Course work will cover a Facebook Inc IPO process since it appears in NESDAQ , indicate how the IPO affects its performance and analysis the Global IPO since 2001 with explanation for the most successful IPO in last decade.

Facebook Inc.

Prior to Facebook going public it was being operated as a private company. As have been mentioned that this course work will discuss Facebook process of IPOs. Facebook Inc is social media network that involve multinational 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 then it acquired a domain name of facebook.com from an American farm bureau federation. The company (Facebook) was able to obtain $8.5 million worth of investment as it was growing up. This investment was later sold to the public for the reason of raising capital in the stock market. Facebook Inc which owned by Zuckerberg and operated as a private company before it goes public and then floating its shares through conducted an IPO in February 2012 and later started trading in the NESDAQ stock exchange market on May of the same year. The company is well organized in terms of management structure. Facebook Inc. is considered as one of the biggest company having floated its shares through an IPO.

Global IPO Activities since 2001:

This section will analyze the trends of IPO to determine whether there has been a decrease or an increase in the IPOs activities during the last decade. According to the charts below that has been derived from Ernst & Young, the trends for Global initial public offering has been on a fluctuating basis 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 overseas IPO deal number dropped by 114% and the value fall down to $ 99 billion compare to $ 210 billion in 2000 . The following two years, the Global IPO volume average were 829 IPO which was the lowest compared to the previous decade. However during the year 2004 to 2007 there was an increase in the volume of IPO till it hit the highest point on 2007 to 2,014 IPO dells. During the global financial crisis of 2008, the decline was happened again due to the effect of global financial market and that leads to increase the bankrupts among organization and investor that increase their domestic consumption as compared to investment and saving. During year 2010, the global IPO was at its peak once more because the global financial institutions were improved. In the next year, there was a European debt crisis which had influenced the global IPO trend downward up to 66% (Ernest and young 2012). That later consequence companies such as Facebook in early 2012 and has provided a stage for increasing in IPO volume to be the biggest in US history in the Technology sector. Source: Ernst & Young Globally, the trends in IPOs have declined significantly during this decade. This can be attributed to the economies of scope-hypothesis (Biagio and Jong-Kun 2004). This means that the economy has been significantly affected in the course of this decade leading to a decline in amount of substantive growth of the smaller firms. According to Wall Street Journal (2012) 'the decline in growth has further affected the global economy in terms of decrease in gross domestic production (GDP) as well as causing lower rates of employment'. That will lead the companies less profitability and lack of analytical coverage by the investment banks, so will be lower valuation of the stock prices of the above mentioned smaller firms in the public stock exchange markets making potential investors away from buying the newly floated shares as well as stock (Williams 2012).A  In addition, the cost of venturing into the public exchange market became unreasonable because the company had to incur the costs of extended financial requirements which were too large for them to maintain. The other aspect which has lead to the decline in IPOs is the financial crisis of 2007-2008 which lead to a decline in the stock market operations (Elliott 2012).A During the financial crisis, smaller firms have been hugely affected making them worried from making public offering. Moreover, the number of investors well reduced dramatically due to the fact that the disposable income has also been minimized. On the other hand, according to Bloomberg (2012) 'in order to promote IPO growth, companies should concentrate on lower prices per share so that investors can be motivated to purchase the shares'. To clarify the analyses of the Global activity performance the paper will restricted the period to examine data as shows in the above charts in monthly bases from January 2010 to March 2012 that has been sourced from Ernest and Young to find the correlation between the value of IPO and the amount of capital raised also, to analysis the reasons of limited IPO since the global financial crisis cause by Eurozone debt crisis. The chart illustrated clearly that there is a positive correlation between the volume of IPO and the amount of capital raised. In contrast, between the selected periods there were about 2,804 companies went public with quarterly average of 311 IPO which is below the average compared with previous three year. This decline in the number of global IPOs is related to global economic conditions which have been already explained above. The other aspect which was supposed as having contributed to the limited in the number of IPOs is the significant imbalance coverage by investment banks and the additional cost associated with the initial public offering process. This meant that the investment banks could not focus on the smaller companies and therefore let them through unfair forms of competition as compared to the larger corporations which had already established their respective operations and thus revenues (Lerner and Hardymon 2011).

Facebook IPO Performance

When Facebook Inc started trading its shares in the NESDAQ securities exchange, the share volume was beyond 573 million shares during the first day of trading (financeyahoo.com 2012).A This was followed by a technical problem which had prevented placement of orders for the shares from going through. The technical problem resulted into an unexpected decline in the prices of Facebook Inc shares which affect negatively on the company's management as well as the investors. This can be compared to the initial offering price which was $38 per share. On 18 May 2012 Facebook stock started treading in NESDAQ at $42.05 and fluctuated between $45 and $38 throughout the day it closed above its IPO price at $38.23. After the third day, the shares were traded at a low of about $31 per share and the stock had fallen sharply in the weeks following the IPO (Financeyahoo.com 2012). Due to this unexpected decline in share prices, it later lead to an investigation on Facebook Inc which was aimed to sort out the causes of the trouble facing the decline on the price of shares from the initial offering prices. It was later discovered that the underwriters; Morgan Stanley, JP Morgan and Goldman Sachs; did in fact cut-down their forecasted earnings in the middle of the IPO advertisement to suit the needs of specific investors (Blodget, May 2012). In June of the same year, the Company had lost over 47% of its initial value and thus led to the IPO being marked as corrupted (The Guardian, 2012).

Source: Saxo Bank

According to the above line charts that has been derived from Saxo Bank , the Facebook shares price have declined since it traded in NESDAC on May 2012. On 4th of September it reached the lowest share price to $ 17.73 and from that time tell submitting this paper the share price have not exceed $26 which is traded under 31% of initial Public share price. On the other hand, the highest trading volume of Facebook shares was on the first day of traded by almost 573,576,400 shares which have not reached again. From the shape of the line chart which shows downward trend and from the limitation of volume traded in NSEDAC market it concluded that the investor were expecting to find better performance in the market share or in the financial statement but they do not. The Facebook investors have different expectations regarding the valuation of Facebook. The most optimistic investors buy the IPO to get quick or short-term gain from sale the stock after first days of trend. 'Over time, as the variance of opinions decreases, the marginal investor's valuation will converge towards the mean valuation, and its price will fall' as well as share price of Facebook (Ritter and Welch , 2002, p 1821).

The Process of IPO for Facebook:

IPO processes aims to transform a privately owned company into a public company by trading sections of its ownership as shares in the stock exchange market (Laura 2002). Companies use IPOs to rise capital and thus to be expanded; therefore, the management brings their effort to convert the money investment made through potential investors in order to raise a significant amount of capital needed for expansion activities of the firm. The process of initial public offering involves creating a portfolio over which potential investors can make decisions on which terms they desire their own shares to be traded upon (Mudambi 2006). The company must provide a detailed document called prospectus to enable investors to have a clear understanding of the company activities (Khurshed 2006). Companies consult investment banks so that the bank can prepare statement on various aspects including financial position of the company and then act as an official underwriter agent. Once the company has listed its securities in a public exchange market, the initial financial funds goes to the private entity (Goergen, Khurshed and Mudambi 2006). The above summery has provided an overview of Facebook Inc in terms of its founders, management and reasons behind the Company going public. Therefore, the following will further discuss how the company went public and the processes involved in. When Facebook Inc aimed to going public they started with the first important step which was appointing an investment bank (underwriter) (Mudambi 2012). The investment bank that Facebook Inc selected was Morgan Stanley investment bank. The choice of Morgan Stanley, JP Morgan and Goldman Sachs investment banks were based on the fact that the investment banks were fairly reliable banks which have a lot of broader experience and also, they were conducted a lot of research tools in terms of expertise. The above mentioned investment banks acted as middleman agents for carrying out the links between the investors and the issuer (Facebook Inc) of the shares. Furthermore, the investment banks were to prepare the prospectus which to be used as a benchmark for making investment decision by potential investors. After selecting the investment banks, the company filed a form known as the form S-1 (Mudambi 2011). This form must be filled and its approval made by the Securities and Exchange Commission (SEC) of the federal government in the United States. Within a period of 2-3 weeks, there were lengthy negotiation involved between the investment bank and the SEC. Through this step on 9th of May 2012, Facebook underwriters issue an amended IPO prospectus. However, the amended prospectus was misleading on page 57 in the way that the underwriters did not clarify the weakness in the financial performance of Facebook Inc second quarter and future estimation (Blodget, May 2012). This may one of the reasons of the declines in the Facebook Inc IPO share prices. On 18 May 2012, Facebook Inc made an initial offer of 460 million shares trading at $38 per share in that very initial offer.

Successful IPO

This section of paper will analysis the performance of most successful IPO since 2000. In fact, it is difficult to determined which successful IPOs because there is no specific stander in which can be evaluate the companies IPOs also, no single profile of a successful IPO company. However, the table below shows figures of the best performing IPOs which were conducted by CNBC on the 5 best IPO since 2000 indicates the following. Company IPO Deal ($) First day 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 table the statistics shows that China Life Insurance Company had the largest deal in IPO than Facebook Inc. A further analysis which was conducted in order to determine which between the two companies has successfully launched its IPO. Considering the time factor, this paper asserts that Facebook has been more successful as compared to China Life Insurance Company. Taking into Consideration the time value of money; and the prevailing marketing conditions this paper acknowledge that for China Life Insurance Company, the launch of the IPO was done before the financial crisis of 2008 whereas for Facebook the launch was done after the financing crises recovery strategies were put underway in that matter.

Conclusion:

In conclusion, the Global markets stock has been affected through crises since the beginning of this decade. However, initial public offering comes in as a grantee haven for investors and companies to collect money from IPOs activities to gain profit by reinvest the surplus money. In order to make a huge initial public offering benefit, companies should clearly evaluate the stock market conditions. The prices of shares are depend on demand and supply in the market stock also, it determined by investors expectation; whenever the investors have an optimistic believe it will upward the share prices, but whenever the speculation is pessimistic then the price of shares will drop extremely .

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