Jetblue Case Study

3884 Words Apr 25th, 2014 16 Pages
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
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This document excludes the offer price and the effective date, because they have not yet been determined.
• Go on a “road show” (with the underwriter) to present and market the information about the IPO to key institutional investors and attempt to create interest.
• Decide on the IPO price based on the degree of success of the road show and the current market conditions.
• Complete the final step of the IPO process and publicly issue securities in the stock market and collect the capital from investors.
IPO Valuation
The process of determining the IPO share price as an indicator of value is extremely significant for a company. Determining the share price target range depends on a number of factors, including the success of the “road show,” demand from investors, and comparison with other IPO valuations from similar companies. The final IPO share price will be somewhere within the target range and the market response to the IPO is a measure of whether the share price was correctly valuated.
JetBlue: Private to Public
JetBlue opened for business in December 1999 as “New Air”. New Air, soon to be JetBlue, was founded by David Neeleman. Mr. Neeleman wanted JetBlue to be a low cost, great customer experience airline, modeled a little after Southwest Airlines. In 2000 JetBlue lost approximately $21.3 million, but 2001 they saw a profit of $38.5 million. Although in 2001…