The Differences between Traditional and Auction in Releasing an Ipo Finance Essay

The differences between traditional or auction in terms of releasing an IPO vary amongst the first lot of investors, cost and risks associated. EBay should use the book building method in the Skype s initial public offer because a large number of share holders are expected to turn out and thus a higher risk. This method will enable the company to take control of the process and thus there will be efficient flow of the information. Neither one is definitively the better way for a company to go public; the choice between the two is dependent upon the individual aims and the targets. In the traditional means of releasing an IPO, the company going public will seek out an investment firm to work with that will underwrite the IPO, seek out a select group of investors, and determine the price of the IPO based on the amount of capital the company plans to raise and the stake ready to be sold out to the people. It uses the latest technology to assist customers in communication. Its communications are one on one just like the mobile phone technology, the only difference is that this one is via the internet using computers and enabled handsets only.

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Such an auction of the Skype type will attract individual investors and also investors of the corporate nature, which will open the company up to a significantly larger pool of clients. This will enable the company spend less money in the process of underwriting that it would have spent if it used the traditional IPO method. The company still requires an investment bank for underwriting, but at a lesser cost than the previous IPOs. Through an auction-based release, average individual traders/investors can get a piece of the company. Skype, the Internet telephony company, is looking to raise up to $100 million in an initial public offering, according to an S-1 filing with the U.S. Securities and Exchange Commission. The company will be selling American Depositary Shares (ADSs) and will trade on the NASDAQ Global Market. The right decision would be to go with an auction based IPO. With the auction based IPO Skype spends much less money in an investment bank for underwriting than it would in the traditional IPO. On the other hand this gives small investors an opportunity to invest into a large company. Also with the auction based IPO, the profits go directly to the company and not to the private investors as it would in the traditional method (Malik, 10). The Skype management is very determined in the success of the initial public offer and well prepared to raise the capital. Such a popular company risks oversubscription due to its popularity and oversubscription and the management should be very keen on the process and ensure that the share application process is as planned.

An ordinary person may be able to buy Skype s shares for less than institutional buyers who pay the IPO price. The vast majority of this year s IPOs are trading below their offering prices, including Broadsoft, which was the latest VoIP related company to go public a couple of months ago. This will probably trade at a premium to Vonage. When Skype was sold to its private investors it was valued to be worth $2.75 billion. By Skype going public, it will automatically be among the largest trading internet company

This is what happened with Morning star when they opened their IPO. But in Morning star’s case, the lead under writer — now WR Hambrecht instead of Morgan Stanley will hold an auction to determine where to set the price and how the shares will be divided up. "It ties in with the ethos of Morningstar that everyone should have a fair share, it s a fair system from the initial offer to the favored funds or individuals.

Indeed that may be the reason why previous Morgan Stanley, Deutsche Bank Securities and William Blair have now considered completing the Morningstar contract. "They don’t want to validate the process to see it become a trend," says Taulli (Bradley, 10). It wants to compete more directly with VoIP providers like Vonage, and it wants to make its presence known in the corporate world with offerings like Skype for Business. The issue of shares is one complex business practice that involves the offering of part of a company in form of shares to the public. Skype has used this as a way of increasing its investment and its capital in general. This is one important aspect of the initial public offer of a company s shares. It can be used to raise a company s revenue because it increases the overall investment. Skype may be a different case all together, since they are probably floating a very small number of shares (worth $100 Million). So if there are few shares trading, this may create enough of demand shortage to artificially inflate the stock price, at least for a while. Skype has now gained popularity after this initial public offer and helped spread to the world.

Luxembourg Skype indicated that it aimed at selling over one million dollars in the American depository shares (Moren, 10). The issue of shares increases the company s capital and helps it increase its investments and thus its growth. It also has a paid service offering low-cost calls from Skype to land lines or cell phones. Still, Skype has been slow to convert clients to some of the most reliable clients or consumers. They help to increase the company s overall capital and allows for the spread of the company s capital holdings to all parts of the world, thus its growth. The company has been very successful in allowing all its customers around the world to communicate in real time. This has further increased the efficiency and reliability of the company among the customers and thus will be in a better position to raise the one hundred million dollars in a short duration. The company has managed to raise its revenue in very different ways and especially from its income. It has however decided to increase the capital by using the initial public offer. The company has increased its revenue using the video and voice calls which can amount to more that ninety billion dollars in the duration of six months especially the first six months of the year 2010. This is a remarkable earnings value and will help boost its marketability in the purchase of the shares by the subscribers.

Revenue and profit are good, and the company (Skype) has every right to pursue them. By going public, a completely different angle had to be taken in the business decision process, and the drive for profit could force Skype to cancel free services, or start charging for services that are currently free in order to cover overhead and keep revenue up. I expect that the Skype IPO can be a success. But, the company that emerges on the other side might be fundamentally different than the Skype we have now. The financial purpose of the Skype IPO is to unlock eBay s value to its shareholders.

Skype also has an agreement with Verizon to allow Skype phone calls on its network. The injection of cash from the much awaited IPO could allow Skype to offer a vast variety of innovative new features and communication services, as well as providing the company with a marketing budget to help generate more paying customers and a wider adoption by businesses. However, the IPO can also be somewhat of a Pandora’s Box. With investors, come a lot of expectations and demands. Shareholders expect rising share prices and dividends. They want a return on their investment, and that pressure can fundamentally change the way business is conducted, possibly stifling creativity and innovation for the sake of revenue and profit, which is not what the company initially intended to do.

It doesn t really matter what the valuation of Skype s last buyout was, what really matters is what investors are willing to pay in the public market. The IPO underwriters seem to do a good job nowadays days of touting the stock to institutional investors and getting the IPOs to market (this way they earn their underwriting fees), but the problem is that more than 50% of these IPOs subsequently trade down in the public markets.

Skype has been fairly aggressive at making a mark in mobile communications. In February, Skype unveiled a mobile application for use on devices carried by Verizon Wireless, the top U.S. Use of the Skype technology in their production the first half of 2010 raised its production out by a high percentage in the period, Skype’s profit fell 42% to $13.1 million, weighed down by costs related to the buyout, even as revenue rose 25% to $406.2 million. The company had 6.4 million billing minutes during the first six months of2010, versus 10.7 billion minutes during 2009. EBay sold a 65 percent stake in Skype to private equity investors in November 2009 for about $1.9billion.

Skype gave Jolt, a company controlled by Zennstrom and Fris, about 10 percent of the equity (valued about $224 million) and a net payment of $85 million in cash. Jolt bought 3.4 percent of shares in cash for $85 million. In addition, Skype invested $10 million in Niklas and Janus venture fund, Atominico and another $6 million in their new service, Radio. Skype has tried its best to make mark in mobile communications It developed a Skype iPhone application, which just recently added the ability to multi task. Skype also has a deal with Verizon to allow Skype calls on its network (Bradley, 10).

I expect that the Skype IPO can be success.

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The Differences Between Traditional And Auction In Releasing An Ipo Finance Essay. (2017, Jun 26). Retrieved January 31, 2023 , from

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