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Product cover image for Facebook, Inc.: The Initial Public Offering (A)

Facebook, Inc.: The Initial Public Offering (A)

Deborah Compeau; Craig Dunbar; Michael R. King; Ken Mark

Product #:9B12N031_P
Supplier:Ivey
Discipline:Communications, Finance
Setting:United States, 2012
Details:Case (PDF) • 20 pages • 2013-01-25 (Rev: 2014-03-13)

Subjects:

Corporate financeSocial mediaWeb-based technologiesEquity financingFinancingOrganizational cultureOrganizational behaviorFinance and investing

Industries:

Information technology and telecom sector

Geography:

United StatesNorth America
Your Price:$8.66

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It was May 16, 2012, and the highly anticipated pricing of Facebook Inc.’s initial public offering (IPO) was underway. An analyst at CXTechnology Fund was preparing to speak to the lead underwriter about his final interest in the deal. The analyst had reviewed Facebook’s phenomenal growth, its profitable business model and the competitive landscape for the social networking industry. The IPO appeared to be oversubscribed with heavy interest from institutional and retail investors alike, but the valuation seemed expensive, even by technology standards. The analyst needed to make a decision on whether to buy shares in the IPO or not. A spreadsheet for students is available, product 7B12N031.

Learning Objectives

The case introduces both MBA and undergraduate students to advanced issues in corporate finance. Students are faced with a fast-growing, high-profile company from a new industry where the potential earnings outlook is uncertain. Students learn about the dynamics of the IPO market, the incentives of different parties (company, insiders, underwriters, new shareholders) and their potential conflicting interests. It is hard to establish a valuation for Facebook’s shares despite having a third-party fundamental valuation and market multiples from both precedent transactions and comparable companies. Through the discussion, students learn that equity valuation is both an art and a science. They also review the steps involved in a U.S. IPO.
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Case Study: Facebook, Inc.: The Initial Public Offering (A) | Ivey Publishing