Facebook Ipo Case Study

Background Facebook’s IPO (Initial public offering) is one of the world’s largest initial stock offerings, raising $16 billion for the company. Facebook made its stock market debut on May 18 with an initial offering price of $38 per share, but closed at $38.23, a slight 0.61 per cent up (Associated Press, 2012). The typical big first-day pop in the share price seen in other technology companies’ IPOs that many investors had expected did not materialise. Instead, its stock price has tumbled since. On the close of its 12th trading days, Facebook’s stock price fell to $25.87, a drop of 31.9% from its IPO price. The highly anticipated IPO has now turned into a debacle, sparking fury among investors which led to the filing of a number of lawsuits. Questions Andrew Preston, the CEO of Greentech Company, a private game software developing company, is planning to raise equity through an initial public offering. Andrew is going to propose the plan to the major shareholders and is worried about the resistance from the shareholders due to the recent Facebook’s IPO debacle. He remembered from his MBA finance course that many IPOs in the US were issued at prices substantially below the first day closing market prices. However, he was not sure whether the short-run IPO underpricing phenomenon exists in Australia stock market. Andrew asked you, the chief financial analyst, to investigate and prepare a report on the following issues. 1. Short-run IPO underpricing is a well-known phenomenon exists in the US stock market. Is this phenomenon unique to the US IPO firms only? In other words, does this phenomenon exist in the Australian stock market? To answer this question, you are required to investigate the short-run IPO performance in the Australia stock market. To measure the short-run IPO performance, you should calculate and analyse the initial return of IPOs that were listed on Australian Securities Exchange (ASX) from June, 1 2009 to May 31, 2010 and remain listed up until its

References: 1. Ritter, J. R. (1991). The long-run performance of initial public offerings. The Journal of Finance 46, 3-27. 2. Associated Press. (2012, May 18). Facebook’s IPO: Price flat on first trading day, The Herald, from http://www.heraldnet.com/article/20120518/BIZ/120519770/1013/BIZ05. 5