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The document is a case study about Facebook's upcoming initial public offering in May 2012. It provides questions for an analyst at a mutual fund to consider in determining whether to purchase shares in the IPO and at what price. The questions cover: 1) How Facebook makes money and its value drivers relative to competitors. 2) Why Facebook is going public and its planned use of IPO proceeds. 3) Recent performance of the US IPO market. 4) Valuing Facebook shares using discounted cash flow versus the underwriter price range. 5) Potential concerns about Facebook or the offering. 6) The analyst's final recommendation for the fund.

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24 views1 page

Facebook

The document is a case study about Facebook's upcoming initial public offering in May 2012. It provides questions for an analyst at a mutual fund to consider in determining whether to purchase shares in the IPO and at what price. The questions cover: 1) How Facebook makes money and its value drivers relative to competitors. 2) Why Facebook is going public and its planned use of IPO proceeds. 3) Recent performance of the US IPO market. 4) Valuing Facebook shares using discounted cash flow versus the underwriter price range. 5) Potential concerns about Facebook or the offering. 6) The analyst's final recommendation for the fund.

Uploaded by

Arush Sinhal
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Advanced Corporate Finance

Lakshmi Naaraayanan
Summer 2023

Case Study Questions


Facebook Inc: The Initial Public
Offering

Facebook is going public through a much-anticipated U.S. initial public offering (IPO) in mid-
May 2012. The underwriters are finishing the book-building process and have raised the price
range to $34 to $38 and increased the number of shares being offered from 337 million to 421
million. Most of these shares are being sold by existing shareholders through a secondary
offering. Jonathan McNeil, a fictional lead analyst at a mutual fund specializing in Internet and
technology companies (CXTechnology Fund), must decide whether to buy shares in Facebook’s
IPO and, if so, at what price.

1. How does Facebook make money? What are the value drivers of its business? What is its
comparative advantage relative to other social networking companies?
2. Why is Facebook going public? What is the planned use of proceeds from the offering?
3. What was going on in the U.S. IPO markets prior to Facebook’s offering? What has been
the performance of recent IPOs?
4. What is the intrinsic value of a Facebook share? How does this valuation compare to the
price talk from the underwriters? (Use discounted cash flow to arrive at the intrinsic value)
5. As a potential shareholder, what are your concerns about Facebook or its stock offering?
6. What is your recommendation for the CXTechnology Fund?

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